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How to fix Social Security

Christopher Serra for the Boston Globe/Globe Freelance

A RECENT report by the Social Security Board of Trustees that the system's trust funds could be exhausted by 2033 — three years earlier than the prior year's estimate — ought to be a wake-up call for Democrats and Republicans to put country above party. It's time to stop kicking the can down the road and work together toward a goal we all share: retirement security. As Americans live longer and our population ages, we need a reliable retirement system with strong public and private elements.

We are two executives with different views — one an FDR Democrat who heads a nonprofit health plan, the other a Reagan Republican who leads a private investment firm. But on the core issue of retirement security, we share common ground. We believe that Social Security, the most successful government program in our country's history, is an indispensable base for all Americans' retirement security. It needs to be preserved, and its solvency guaranteed. In addition, the system should be backed up by a robust private workplace savings system that all working Americans have access to.


Social Security does have assets to meet its current obligations. It holds $2.7 trillion in special federal government bonds in its trust fund. But as its trustees' reports show, the system also faces a multi-trillion dollar funding shortfall over the next 75 years. Absent reform, trust fund assets could be exhausted by 2033 — leading to an abrupt drop of roughly 25 percent in a current 40-year-old's future benefits. The uncertainty that this funding gap creates is what undermines so many peoples' confidence in the system today.

The good news is that relatively manageable reforms today can make the system solvent for generations — and avoid the vastly more painful cuts that continued delay would cause. There is certainly plenty of precedent for action.


Congress has enacted 10 significant Social Security bills over the years. Each brought the program back into balance under changing economic and demographic circumstances. The most recent of these reforms came in 1983 when President Ronald Reagan and House Speaker Thomas "Tip" O'Neill crafted a bipartisan package of revenue increases and benefit reductions that put Social Security on firm ground for a full generation. We need just such a balanced approach now, reflecting new economic and demographic realities — especially rising longevity.

On the revenue side, we should hold tax rates steady, but gradually phase in a rise in the current $110,100 ceiling on wages subject to Social Security contributions. Until the 1990s, that ceiling reached roughly 90 percent of all wages. We should move back up to that 90 percent level by 2020 and then index the ceiling to future wage gains. This reflects the income gains that the most successful Americans have seen in the past generation. Lifting the FICA ceiling would be far preferable to the "means testing" that some have proposed — which would deny benefits to the more affluent. We could also enhance revenues by requiring all future state and local government employees to join the Social Security system, a reform that would also, over time, make local pension costs more manageable.

On the benefits side, we should change the way we calculate the cost-of-living adjustment for all beneficiaries, by utilizing a revised Consumer Price Index which most economists agree more accurately reflects the rate of inflation for the expenses most seniors incur. Such a change would curb the rate of increase in benefits for future generations of retirees, but no one would actually get less money. This change in the benefits formula should be structured so that it makes future economic growth a clear positive — enabling incoming revenues to grow somewhat faster than promised benefits so that the system becomes truly self-sustaining.


Lastly, we should accelerate the rise in Social Security's full-benefit retirement age from age 67 to 68 by 2030 and then index the full benefit age for future generations to gains in longevity. Life expectancy past age 65 has risen nearly 50 percent since 1940, when Social Security first began regular monthly payments. That said, we should improve disability options for those engaged in physically demanding jobs. No one expects coal miners or telephone line crews to work into their late 60s.

Based on estimates included in the 2010 report of the Social Security system's expert advisory board, these proposals could eliminate nearly all of Social Security's funding shortfall over the next 75 years.

We should then back up a solvent Social Security system with as close to universal access to workplace-based private savings as possible. This requires preserving all existing tax deferrals for savings through 401(k)s, IRAs, and other retirement vehicles — then extending coverage to all working Americans by adopting a great, bipartisan idea — the payroll-deduction Automatic IRA. These tax deferrals are not part of America's deficit problem. In fact, the savings they foster are key to funding economic growth and robust capital markets. Savings-led growth is the best long-term solution for our deficits.


Creating a truly reliable public-private retirement system would do far more than just help restore Americans' confidence in their personal futures. It would boost market confidence worldwide. It might also revive the American people's belief that our two political parties can look past their differences — as we have — to find common ground for the country we love. Rebooting that shared faith might just be the greatest benefit of all.

James Roosevelt Jr. is president and CEO of Tufts Health Plan and former associate commissioner for retirement policy for the Social Security Administration. Robert L. Reynolds is president and CEO of Putnam Investments.