The Social Security program has been successful in reducing poverty and promoting economic security for millions of Americans – those who are retired and disabled as well as surviving spouses and children of deceased beneficiaries. However, the program’s long-term financial sustainability has been a source of debate among lawmakers for some time. The program’s trustees estimate that its trust funds will be depleted (and benefits reduced) by 2034 unless changes are made. Below we discuss some of the options that lawmakers have put forth to reform Social Security.

Raise the Payroll Tax Rate

Revenue for Social Security could be increased by raising the payroll tax rate or the maximum taxable earnings. Currently, the payroll tax rate is 12.4%, split evenly between employee and employer on earnings up to $160,200 (the self-employed pay 12.4 percent). Under this proposal, the tax rate would gradually increase by 1 percentage point over the next decade. Another option is to increase the maximum taxable earnings cap, which is adjusted annually for inflation. Increasing the cap would loop in more high earners to the Social Security system and generate additional revenue. Critics point out that increasing taxes would be burdensome on workers and employers, and could hinder economic growth.

Increase Retirement Age

This is one of the most popular proposals put forth so far. Currently, full retirement age is 66 for people born between 1943 and 1954, and gradually increases to 67 for those born in 1960 or later. Lawmakers have suggested gradually increasing the retirement age to 69 or 70 over the next few decades. Advocates of this approach assert that it reflects longer life expectancies and helps to safeguard the program’s long-term sustainability, but others believe it would unfairly affect workers who have physically demanding jobs and may not be able to remain in the workforce as long.

Change the Way Benefits are Calculated

Currently, benefits are based on a worker’s highest 35 years of earnings, adjusted for inflation. One approach is to use a formula that is less generous to higher earners, but critics are quick to point out that this could create a disincentive for workers to boost their earnings and could discourage entrepreneurship.

Allow for a Diversified Portfolio

Social Security funds are currently invested in special-issue government bonds, which have a lower rate of return than stocks or other investments. One proposal is to allow Social Security funds to be invested in a diversified portfolio of stocks and bonds, which could potentially earn higher returns and increase the program’s financial sustainability. Lawmakers who are against this approach point to the market’s risk and volatility.

Create Individual IRAs and Private Savings Accounts

This option for Social Security reform involves implementing individual retirement accounts (IRAs) or other private savings accounts as alternatives to Social Security, granting individuals the option to invest a portion of their earnings in the stock market or other investments. Using this method, individuals would have more control over their retirement savings and could possibly earn higher returns than they would under the Social Security system. However, private accounts could be risky and expose individuals to market volatility. Additionally, the Social Security system provides a safety net for vulnerable populations who may not have the resources to invest in private accounts.