An Online Simulator for Testing Reform Options
Our Social Security Simulator: An objective, neutral, bipartisan tool
for understanding Social Security issues quickly and accurately.
This page, the Benefits Page, gives you tools for adjusting the amount of money Social Security pays out. The Taxes Page gives you tools for adjusting the total money that Social Security takes in. The Funding Page gives you tools for adjusting Social Security's investment strategy.
Specific or Overall
Specific
Phased-In Reductions for High, Medium, & Low Earners
Means Tested Benefits for High Income Retirees
Reduce Annual Cost Of Living Adjustments for Retirees
Create a Minimum Benefit Guarantee for the Poor
Improve Survivor's Benefits
Raise the Retirement Age
Raise Penalty for Early Retirement
Raise the Early Retirement Age
Increase Earnings Average from 'Best 35 Years' to 'Best 38'
Overall
Benefit Target and Phasedown Period
Specific or Overall?
(Specific Benefits section not implemented yet.) When you click on the Benefits Page, you face a decision. Adjust specific benefits? Or adjust the overall benefit level? If you click on Specific, you'll highlight the Specific Benefits section and "gray out" the Overall Benefits section. If, though, you click on "Overall Benefits," you'll highlight the Overall Benefits section and "gray out" the Specific Benefits Section. It's one or the other.
Adjust Specific Benefits
Phased-in Benefits Reductions, for High, Medium, and Low Income Earners. (Not coded yet.) Federal Law authorizes the use of a compex formula for calculating an individual's benefits when he/she retires. First determine the individual's career "average wage." Then, based on the average wage, award a specific percentage of the first X dollars, up to such-and-such "bend point." A smaller percentage up to the next "bend point." And so on. We could have designed the Simulator to ask you for your opinion about bend points. We didn't; we prefer a simpler approach. Simply pick the Benefit Reductions (if any) that should be applied to High, Medium, and Low Income Earners.
Means Tested Benefits for High Income Retirees. (Not coded yet.) Even in retirement, there are some Americans who can count on a substantial monthy income. If adopted, Means Testing cuts back the Social Security benefits to be paid out to the nation's highest income retirees.
Reduce Annual Cost Of Living Adjustments for Retirees. (Not coded yet.) Once you've retired and begun to receive Social Security benefits, all future adjustments to your benefit check are triggered by increases in the Consumer Price Index. Some analysts have suggested shaving the size of this adjustment as a way of trimming future outlays.
This suggestion is supported by those economists who criticize the Consumer Price Index for overstating the real rate of inflation. Other economists disagree, arguing that a CPI which doesn't give adequate weight to price increases in medical care may well understate the consequences of inflation for the elderly. Critics also point out that reducing the COLA has a cumulative effect. What starts as a half a percent cut for those who've been retired a year becomes a ten percent cut in benefits for those who've been retired twenty years.
If you select this option, you can test its impact on Social Security's long-run solvency status.
Then you'll have to decide how much of an adjustment to make. Trim one-third of a percentage off the annual COLA adjustment? Trim one-half a percentage point off? Trim off a full percentage point? Leave it at zero, of course, and there'll be no effect on long-term solvency.
Create a Minimum Benefit Guarantee for the Poor. (Not coded yet.) One simple way to restore Social Security's long-range solvency is to make deep cuts in the overall benefit structure. While deep cuts are an effective strategy for establishing solvency, such a strategy has harsh consequences for retirees, especially the low income elderly. Those who favor deep cuts sometimes recommend creation of a minimum benefit guarantee for the poor, to mitigate the impact of deep, across-the-board benefit cuts. Other analysts also favor a minimum benefit for the poor, simply as a matter of social equity.
Checking this option increases the amount that Social Security will pay out to its lower income beneficiaries.
Improve Survivor's Benefits. (Not coded yet.) This option also expands Social Security's obligations to retirees. Current formulas don't take care of the lower income spouse nearly as well as the higher income spouse. Some Social Security specialists have flagged this as an oversight in need of correction. Check this option if you'd like to see better survivor's benefits included in any future Social Security reform package.
Raise the Retirement Age. (Not coded yet.) Under current law, the retirement age is already being raised to 66, as of 2008, and to 67, as of 2025, on a phased-in basis. If you like, you can accelerate these targets, slow them down, or eliminate them entirely, and leave the retirement age at 65. You can also use this section to raise the retirement age, in steps, to 68, 69, and then 70.
Choice of the proper retirement age goes to the heart of Social Security's long-range solvency. Life expectancies are rising steadily. Every eleven years, average life expectancy rises by another year.
Knowing this, some economists argue that Social Security's retirement age should be indexed to average life expectancy, rather than being fixed at a defined age. Only by indexing the retirement age to life expectancy, they say, can the Federal Government ever hope to maintain a financially affordable balance between the number of years spent in work and the number of years spent in retirement.
In principle, this argument has considerable validity. At the same time, not all groups in the population share in the average. As a rule, low income citizens have shorter life expectancies than their higher income brethren. As the relationship between ethnicity and income regrettably persists, this also means that some ethnic groups have shorter life expectancies than others.
Does this mean the retirement age should, in the future, be tied to education? With the retirement age being raised first for those with college and professional degrees, and only later for those with less education?
As of now, we haven't designed the Simulator to test such an approach. Everyone is treated the same, regardless of income, and the Simulator puts the rest of the decision in your hands. It lets you decide when any increase in the retirement age should be made. Once you decide, the Simulator calculates the likely consequences.
Raise Penalty for Early Retirement. (Not coded yet.) Those who choose to retire a little early are allowed to do so by Social Security, but Social Security reduces their monthly benefit amounts accordingly. Some reformers advocate an increase in the early retirement penalty, as a way both to discourage early retirement, and to lower the benefit costs associated with early retirement.
Raise the Early Retirement Age. (Not coded yet.) Raising the early retirement age approaches the same issue from a slightly different angle. It doesn't cut the benefit formula; it simply delays the availability of benefits.
Increase the Earnings Averaging Period from 'Best 35 Years' to 'Best 38 Years'. (Not coded yet.) If you were to retire today, Social Security would calculate your "average wage" by using your year-by-year earnings from your best 35 working years (indexing them to remove the effects of inflation). If you're someone who put in forty years of paid work before retirement, Social Security will set aside your five lowest income years before calculating your average wage.
If, on the other hand, you worked as a wage-earner for only thirty years, five of your "zero earning" years will be included in calculating your lifetime average wage.
Tweaking the rule from "best 35" to "best 38" will modestly reduce benefits at retirement for most retirees. Those with shorter work careers will see three more "zero earning years" thrown into the average. Even those with longer work careers will see three more low earning years used in determining their average wage.
There are some who oppose this change on the grounds that it unfairly discriminates against women, who are more likely to have dropped out of the work force in order to have children, and who will, therefore, be penalized at retirement because they chose not to work while raising young children. Perhaps, these critics have said, the change from "Best 35" to "Best 38" should apply only to the Primary Earner in a family, not to the spouse. If you agree, you can check "Primary Earner" instead of "All Earners".
Adjust Overall Benefits
Benefit Target and Phasedown Period. This section gives you a simpler way of trimming overall benefits. Perhaps, over the long run, you'd like to see future benefits trimmed by about 15% from their current level. And perhaps you'd like to phase in the benefit reduction starting in 2010. And to end the phase in by 2040. You'd be happy to leave the details to others; you'd rather work with the overall benefit level as a way of finding an answer to the solvency challenge.
As you can see, the "Adjust Overall Benefits" section is designed just for this purpose. Enter your target percentage, enter your Begin Phasedown and End Phasedown years, and click "Settings OK". You're good to go.
By the way, you're not limited by the range shown on the graph. Your bottom limit is zero. Your top limit is 200%. But you'll probably find yourself working within the same percentage range as the graph.
Another "by the way." Three of the Solution-finding Scenarios (Benefits, Tax Credits, Borrowing) will turn off the "Adjust Specific Benefits" section and will turn on the "Adjust Overall Benefits" section. If you run any of those three scenarios, and then click onto the Benefits Page, you'll see the "Overall Benefits" section highlighted, no matter what you might have chosen earlier.
You're the customer. If you think there is a way the Simulator could be improved, to better meet your needs, please let us know. We welcome your questions and your feedback.
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