While Congress proposes to fiddle with Social Security, Jerry Golden, an actuary and widely recognized expert in annuities -- which is what Social Security really is -- has come up with a plan to save money painlessly.
Golden believes that as the population grows and the boomer generation passes on, Social Security's funding problems will largely solve themselves. In the meantime, he proposes some changes that he thinks would buy time, save money and make the system more retirement planning friendly for the greatest number of people.
Here are his proposals:
- Make Social Security benefits transparent. Keep all participants posted on the actuarial present value of accumulated benefits, or what it would cost a participant to purchase those benefits in the market. Golden calls this the "Social Security Benefit Value," or SSBV. He thinks knowing what they are going to be entitled to motivates people to save.
- Give beneficiaries more choices. Allow people to defer part of their benefits or take the payout in more than one way.
- Add a caregiver income option. This first cousin to long-term care insurance might lower initial payments but raise them if a beneficiary needs care or is unable to perform certain activities of daily living.
Golden thinks that given the option, it is very likely that beneficiaries in the top 10 percent of income brackets would choose to view Social Security as longevity insurance -- letting it sit untouched and growing until they are 85 or so and their other sources of retirement income have been eroded by inflation.
He also predicts that if there were a long-term care insurance option, at least 40 percent of the population would choose that and let part of their benefits sit until they need health care services.
He thinks the lowest earning 50 percent would probably continue to take Social Security much as they do now, although if there was more flexibility to take only part and let the rest grow while continuing to work that would be appealing to some.
"Just from these voluntary actions listed above, we estimate a potential $400 billion in cash savings over the 10 years following adoption of these changes," Golden says.
With this much cash savings, Golden doesn't think there will be any need to change the calculation of Social Security's cost of living increases or raise the normal retirement age.
"Just making the benefits transparent and flexible would result in a natural deferral process," he says.