Mary Beth Franklin: Ways to modernize Social Security benefits

Frankly, I am amazed and disappointed that the nation is only a month away from midterm elections in November and virtually no candidates from either party have mentioned Social Security.

Ignoring the obvious does not diminish the fact that the Social Security trust fund is scheduled to run dry in 2034 if Congress does nothing before then.

The projected exhaustion of the trust fund in 2034 does not mean that Social Security is “bankrupt.” There would be enough payroll taxes to cover about 75% of promised benefits. But no American would be satisfied with a 25% cut in benefits, particularly as Social Security has become increasingly valuable to current and future retirees amid disappearing pensions and increasing life expectancy. I firmly believe that Congress will step in before then to avert disaster.

Although most policy discussions focus on solving long-term financing problems, some advocacy groups see inevitable Social Security reform as an opportunity to revamp the 83-year-old program to reflect evolving demographic patterns and labor trends. Several proposals would enhance benefits for the most vulnerable, such as widows and the very elderly, at the expense of high-income earners and retirees.

The Center for Retirement Research at Boston College, with funding from the AARP, has put out a series of issue briefs noting that rising labor force participation of women, the decline in marriage rates, longer life spans and sluggish wage growth have undermined the support that Social Security offers for caregivers, widows, the oldest people and very low earners.

Since 1939, Social Security has provided benefits to widows to help prevent a precipitous drop in their standard of living after their spouse dies. Today, many policy experts are concerned that these benefits may be inadequate. Widows remain a poor segment of the elderly population, with the poverty rate of widows age 65 and older three times that of married women.

Widows end up poor for several reasons. The most straightforward is the loss of retirement income when the husband dies. The couple’s Social Security benefit is cut by one-third to one-half, and the couple’s private pension benefit is either cut in half or disappears completely.

One popular proposal is to increase the surviving spouse’s Social Security benefit to 75% of the couple’s combined monthly benefit when both spouses were alive. For one-earner couples, the widow benefit would increase from 67% to 75% of the couple’s benefit. For a two-earner couple with similar earnings histories, the surviving spouse’s benefit would increase from roughly 50% to 75% of the couple’s prior income.

“Boosting the widow benefit — while limiting the size of the increase of above-average earners — appears to offer a well-targeted way to help reduce poverty for this vulnerable group,” the Center for Retirement Research’s issue brief on modernizing widow benefits concluded.

It was one of several areas in which the research group recommended increasing benefits for certain vulnerable groups, such as beneficiaries age 85 and older, and paying for it by cutting benefits for wealthier retirees.

The best way to target a benefit adjustment to those at advanced ages is raising benefits at age 85 by a flat dollar amount, rather than a percentage increase, because it helps the lower-income beneficiaries who are most at risk for poverty, the center said in its research paper on helping the oldest old. One way to pay for that increase is to slightly reduce the annual cost-of-living adjustment for all beneficiaries, the report said.

In a separate paper, the center commented on a proposal to create Social Security caregiver credits for individuals who take time out of the workforce to care for children or elderly relatives as a way to improve their future retirement security.

“The cost could be covered by reducing benefits somewhat for higher earners,” the report suggested.

Clearly, there is a pattern here. The cost of inevitable Social Security reform will involve higher payroll taxes and possibly reduced benefits for higher-income workers and retirees.

Does that mean you should claim Social Security benefits sooner rather than later? I doubt it.

We can only make decisions based on current law rather than speculation about future changes. Delaying Social Security benefits until full retirement age or later (up to age 70) results in a bigger monthly benefit for the rest of your life.

In the past, Congress has been reluctant to reduce the benefits of current retirees. Although there is no guarantee what future changes may hold, fixing Social Security is crucial to restore confidence in the nation’s retirement systems but the cost burden should be spread among the generations to give people time to adjust to any needed changes.