Pros and Cons of Three Social Security Reforms

The purpose of this memorandum is to discuss the pros and cons of three different Social Security reforms. Because of population growth effect, which is caused by improvements in life expectancy and decrease in birth rates, and wage growth effect, Social Security program is facing a funding issue. Several reforms have been suggested to solve the funding issues with the Social Security program. The analysis of the pros and cons of three selected reforms are listed below.

Reform 1:

Introduction: Reform 1 aims at changing the retirement age by increasing Early Entitlement Age from 62 to 65 and increasing Full Benefits Age from 67 to 70.

Pros: Increasing the retirement age of Social Security program slightly to reflect American people’s longer life spans is a commonsense and fair method to improve the financing of Social Security program. With the development of medical conditions and technology, American people are now living longer than ever before, which means they are also drawing the benefits from Social Security program longer than before. If the Early Entitlement Age is increased from 62 to 65 and the Full Benefits Age is increased from 67 to 70, the numbers of retired people who are eligible for and consume Social Security benefits will be decreased. By doing this, the benefits of Social security program will be prevented from exhausting too quickly.

Cons: Although the medical conditions and technology are getting better and better, they are less available and accessible for low-earning workers, which means their gains in longevity will be fewer than rich people. Therefore, raising the full retirement age of Social Security program is unjust and this change may cause inequity issue and social conflicts on this program.

Reform 2:

Introduction: Reform 2 targets at changing the benefits generosity by reducing benefits for beneficiaries with high asset levels and by reducing the rate at which the Average Indexed Monthly Earnings are converted to the Primary Insurance Amount for the top bracket from $0.15 to $0.10.

Pros: By reducing the Social Security benefits for beneficiaries with high asset levels, money can be saved and focused on protecting and supporting the benefits of lower-wage workers. This measure can alleviate the financing pressure of Social Security program by improving the benefit structure internally. What’s more, this proposal can also continue to meet Social Security’s original intent of protecting against poverty in old age and promote social equity and improve the wealth redistribution.

Cons: This proposal may cut the benefits of middle-class workers. Some middle-class retirees do have a high level of assets while their assets, such as home equity and lifetime savings may be at risk or unavailable and they need to deal with rising health costs.