2010 October 27
Last update: 2011 Jan 02. Click on History for changes and updates.
Please refer to other posts on the subject of Social Security, particularly the post, Social Security Reform.
In dealing with national problems, one of the challenges is to ensure that all good ideas are reviewed. Business experience is that good ideas are everywhere, not just the ideas from the people who are in control or are professionals on the subject matter. Better solutions for each problem are likely in the in-boxes of the politicians and the designated experts. Social Security is probably no different.
Most of the proposals for addressing the shortfall in Social Security OASI funding are "inside the box" such as raising Social Security OASI taxes, raising retirement age for full benefits, etc. All work within the system as currently defined and reflected in the formulas for calculating the various aspects of Social Security OASI revenues and benefits inherently retains the current assumptions and premises. The formulas which are based on current law may have unintended consequences that contribute to the shortfall in funding.
I have approached Social Security OASI Solvency from a different perspective. I began with the question, "How can Social Security be made permanently solvent with the smallest possible change?" This leads to several key factors: (1) involve the largest possible number of participants, which means all; (2) make the change over the longest possible period of time, which means 75 years for the actuarial projection; (3) use the power of compounding to produce favorable results; and (4) make annual adjustments to ensure ongoing projected solvency over 75 years.
The results are a unique and provide the smallest possible reduction in benefits to make Social Security permanently solvent. The reduction in benefits for a 20-year retirement span is 9% which is less than the adjustments in other proposals. I have sent this material to the chief actuary of the Social Security Administration (receipt acknowledged by SSA), National Commission on Fiscal Responsibility and Reform (Debt Commission), offices of some members of the Debt Commission, and others. Unfortunately, the proposal may be in the "black holes" of established organizations.
The continuation of this post describes the ideas in the proposal. The first paragraph contains a link to the working paper which develops and quantifies the ideas.
Your thoughts are welcome. Please add them as comments. Thanks.
Don Nordeen
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Continue reading Permanent Solvency for Social Security.
- Key Words: Social Security Administration, Social Security, OASI, public policy, entitlement, national debt, private accounts, trust fund
