Social
Security: The view from
The Brookings Institute
Washington, DC
January 13, 2005
John Rother
Director
Policy & Strategy
Social Security Reform
GOALS
Goals of Social Security Reform
 Adequacy
 Equity
 Solvency
Larger Goals
Strengthen retirement security
Promote savings and work options
Slow “spend down” of trust fund after 2028
Increase certainty as workers’ plan for future
Restore confidence of young in stability of
Social Security
Preserving Adequacy
Current benefits average $955
Minimum benefit
Opposition to price-indexing
Ensuring Equity
Raising widow(er)s benefits to 75%
Provide long lead time for any
benefit changes
Social Security Reform
OPTIONS
Options for Solvency #1
Raise wage cap to 90%
Cover all state/local employees
Invest 15% of trust fund in broad
equity index fund
Options for Solvency #2
BLS may adjust CPI
to “superlative” basis
Options for Solvency #3
Benefit reduction options
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Bend Points
Additional years counted 35-38
Longevity-index initial benefit
Raise normal retirement age beyond 67
Raise early retirement age beyond 62
Diversion of payroll contributions
is not the answer
Guaranteed benefits (replacement rates)
will be cut drastically
Risk entire retirement portfolio sinking at once
Cost of transition enormous
Cost of administration for millions of small
accounts significantly reduces yield
Workers will want access to “their” $$$ early
Spouses, disabled, and survivors threatened
“Add-on” private accts a positive
Make Savers Credit refundable
Match contributions below $40k for singles
Require all employers
to implement payroll deduction
Finance with estate tax above $3.5 million
Public Opinion
Want current system preserved, stable
Favor a balance of small
revenue & benefit adjustments
When told downsides to private accts,
support drops dramatically
Agree that low-wage earners
should not be asked to sacrifice
Social
Security: The view from