CBO’s FRA 70 Budget Option Analysis Explored - nchstats.com; AMAC
Today’s post by North American Community Hub Statistics writer Jannik Meyer examines what’s shaping up to be perhaps the most controversial issue Congress will face when its focus finally shifts to the looming Social Security insolvency problem. And anyone following this evolving dilemma is certainly aware that this shift will happen fairly soon, as this crucial senior support program rapidly approaches the cliff that would hurtle millions into poverty.
Meyer is addressing, of course, the issue of changing Social Security’s full retirement age (FRA) as a potential step toward returning the venerable program to financial stability. It’s not the only step being considered, but it has the potential to make the most difference in the effort to address the massive 75-year funding shortfall identified by the program’s trustees.
Meyer’s article explains the current financial pressures facing Social Security as a prelude to entering the discussion on an FRA change, noting that a change to “… the full retirement age sounds like a timing change. In benefit math, it functions as a cut for affected workers.” His post includes a discussion of the arguments for changing the FRA, along with common arguments against the move, and highlights other changes that could be considered, either alongside an FRA change or in place of it.
What the CBO Model Says
The Congressional Budget Office (CBO) has tackled the issue head-on with a study of “… an option that would raise the full retirement age from 67 by two months per birth year for workers born from 1964 through 1981. Under that model, workers born in 1981 or later would have a full retirement age of 70. CBO describes the age-70 plan as a budget option, not a current law change. Workers could still claim as early as 62 under that model, but the reduction for claiming early would be larger because the gap between age 62 and full retirement age would widen.”
CBO’s modeling suggests this change to FRA 70 “would reduce Social Security outlays by $94.7 billion from 2025 through 2034,” and would lessen the relationship between Social Security spending and GDP over the long-term projection period. In acknowledging that the change would reduce scheduled lifetime benefits for every affected Social Security recipient, the CBO also points out that, absent additional fine-tuning of the rules, the reduction would be more severe for those filing at age 62.
Where Public Opinion Comes In
Meyer’s post offers conjecture on the dichotomy that, while a Bipartisan Policy Center poll last year clearly suggests that Americans feel Congress should set resolution of Social Security’s challenges as its top priority, benefit reductions are equally clearly to be avoided. Therein lies the point of tension that politicians will face as ideas become proposals.
More Options Continue to Evolve
Recognizing the widespread impact of Social Security’s problems, many organizations are weighing in with solutions to untangle the rulebook and stabilize the program’s financial picture. In fact, the Social Security Office of the Chief Actuary has evaluated more than a dozen formal proposals regarding changes to the FRA, and additional suggestions are being submitted as the clock winds down. Among these are the Association of Mature American Citizens’ Social Security Guarantee, a 15-point plan to address the program’s financial shortfall and ensure benefit continuity for the full 75-year projection period.
AMAC believes Social Security must be preserved and modernized to meet the demands of 21st-century economics, and suggests this can be achieved without payroll tax increases through relatively minor program modifications, including changes to the cost-of-living adjustment (COLA) process and modifications to the formulas for calculating initial benefits for higher-income beneficiaries. AMAC’s plan includes a recommendation to change the FRA to 70, implemented over 12 years, beginning at a point that shields those within 10 years of age 62 from any effect, with monthly benefits maximized at age 70, as they are now. The AMAC plan includes a change to the benefit reduction schedule that would mitigate some of the impact of an early claiming decision.
AMAC’s recommendations also include (1) an increase in the thresholds where benefits are subject to income tax; (2) indexing of these thresholds annually to account for inflation; (3) changing the taxable maximum formula to address an unintended loss of revenue; (4) improving survivor benefits, (5) eliminating the reduction in benefits for those choosing to work before full retirement age; and (6) improving savings tools for future retirees, including a savings account that builds estate value. AMAC is resolute in its mission to preserve Social Security for current and successive generations and has garnered the attention of lawmakers in D.C., meeting with many congressional offices and staff over the past decade.