Choose-Your-Benefit: Can Citizens Help Save Social Security?

By / 5.9.2012

Recently, the Trustees of the Social Security and Medicare trust funds issued their annual report on the future of America’s entitlement programs. As usual, the news was bleak: Social Security is now expected to go bust in 2033, three years earlier than projected last year.

In their report, the Trustees also issued a sober warning: “Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare.”

Unfortunately, Congress doesn’t look like it’s up to the task, especially in an election year.  Not too long ago, the House of Representatives overwhelmingly rejected—by a vote of 382-38—a bipartisan budget plan based on the recommendations of the White House’s deficit reduction commission that would have included some highly sensible steps toward entitlement reform.

But as long as Congress is stalling on tough decisions around this issue, why not let citizens take charge? Let retiring seniors choose the level of Social Security benefits they’d like to get—especially those comfortable enough to afford giving up some of their benefits.

Under this system, citizens can opt to “give back” $50, $100, $500 or more of the benefits they don’t truly need while also providing a direct mechanism for reducing the deficit while Congress sits on its hands.

Of course it’s possible that no one would opt for a partial benefit. But according to a new study by the Center for Economic and Policy Research, Social Security benefits make up a much smaller share of the wealth of affluent seniors than of lower-income ones. This means that at least for the top quintile of seniors, receiving partial benefits should not be a major sacrifice.

Granted, this measure is certainly more symbolic than substantive. Nevertheless, it might be worth trying for two reasons.

First, it would empower citizens—even if to a tiny extent—in the battle over the federal deficit. One of the most frustrating aspects of the budget debate, from a citizen’s point of view, is the utter inability to affect policy directly. All power is in Congress’s hands, which has meant more problems and no solutions. Voluntarily opting for a reduced benefit would have direct—if small—bottom-line impact on Social Security’s health.

Conceptually, the idea is similar to the voluntary “deficit reduction fund” proposed by others. The U.S. Treasury in fact welcomes “gifts” to reduce the public debt and has collected more than $3 million so far from well-meaning citizens in fiscal 2012. While a drop in the bucket, it’s also remarkable given the government doesn’t actively solicit these donations.

Second, the notion of a voluntary reduced benefit could help socialize the concept of “shared sacrifice.” This proposal relies on Americans’ sense of civic duty to help take the first real steps toward reform. Moreover, government can help “nudge” wealthier seniors in the right direction by providing information about the amount of total Social Security and Medicare benefits a senior is likely to receive (which in almost all instances is more than what is contributed).

And if no one participates, it would actually reveal a lot about Americans’ appetite for entitlement reform and the extent of the “I get mine” mentality that makes reform so difficult in the first place.

So here’s how a partial benefit option could work.

Currently, the amount of benefits a senior receives is determined by a formula based on a worker’s lifetime earnings, and is an all-or-nothing proposition. While seniors can opt out of Social Security altogether, they can’t opt for partial benefits. For example, a relatively affluent senior (e.g., with $75,000 in annual income) can’t opt for a lesser amount in benefits than the 2012 maximum monthly benefit of $2,513 to which they might be entitled.

To calculate the partial benefit, one possibility is to use the deficit commission’s proposals for changing the benefit calculation formula. Under this proposal, the top 20% of seniors would see an 18.7% benefit reduction by 2050, and this lesser amount could be the “suggested” optional benefit for more affluent seniors.

Of course, seniors would also always have the option to opt back in to a full benefit if their circumstances change for the worse.

At best, an optional partial benefit could help pave the way for more meaningful change. At worse, the optional partial benefit would give citizens a shot at trying what Congress can’t currently fix. Given the current deadlock in Washington—why not?

Photo Credit: Donkey Hotey