The Report of the American Academy of Actuaries Academy Publishes 2020 Election Issues Guide

by delmeyer on 02/06/2020 7:50 PM

The American Academy of Actuaries has prepared a series of guides focusing on several major issues to help voters become better informed leading up to the 2020 elections. These issue-focused guides offer information on select campaign topics on which actuaries have expertise. The Academy hopes candidates for higher office will provide details on their proposals to address the challenges addressed by these guides and the positions they would support as duly elected public officials.

American Academy of Actuaries –Social Security Committee

One option is Raising Social Security’s Retirement Age

Read the entire report at

https://www.actuary.org/sites/default/files/files/Soc-Sec-Reform-Options_Monograph_03-03-2014.pdf

The following is the one-page conclusion of the 35-page report.

The problems facing Social Security, when placed in the context of the enormous U.S. economy, are not nearly as daunting as they might seem when presented in stark dollar terms. In the 75-plus-year history of Social Security, the tax rate has increased from 2 percent to 12.4 percent of taxable payroll; the estimated tax increase required to fund the current system over the next 75 years is far less. Further, the need for such tax increases can be reduced, or even eliminated, by changes in benefits and other features; and any required changes can be phased in gradually.

Does this mean we can do nothing and just wait to see what develops? Waiting until the last minute to make changes is not a good idea and can lead to inequities, intended or not, in the distribution of benefit reductions. Drastic benefit changes would not give current beneficiaries or workers near retirement sufficient time to change their retirement plans. This, in turn, could lead to needless dissatisfaction with and loss of confidence in the system. With a longer lead time, changes can be designed with greater care and introduced more gradually. Although a longer lead time may not change the ultimate level of benefit cuts or tax increases required to eliminate the deficit, reductions introduced gradually can be less abrupt and therefore less onerous to those who have planned accordingly.

For these reasons, the American Academy of Actuaries’ Social Security Committee believes that Congress should act soon to make changes that include sustainable solvencyas an ultimate goal. For example, consider workers who are age 45 when the program is changed. When these workers reach the Social Security retirement age of 67, they will have been paying increased taxes, or saving more to compensate for lower expected benefits, for 22 years. Each year reform is delayed means these workers will have fewer years to be part of the solution, and fewer years to prepare for the changes that reform will inevitably bring.

There are numerous potential reforms that could address Social Security’s financial problems. Options within the current defined-benefit structure include increasing the tax rate, reducing benefits by changing the benefit formula, reducing benefits by changing the way they are automatically adjusted for inflation, reducing benefits to dependents, changing the way trust fund assets are invested, and raising the age at which unreduced benefits are paid. Alternatively, the system could be fundamentally changed so that all or some of the benefits are paid from individual accounts. This report presents the committee’s analysis of these and other options, without the endorsement of any particular change.

Raising Social Security’s Retirement Age

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Government is not the solution to our problems; government is the problem.

–Ronald Reagan