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Think You Can Fix the Social Security Trust Funds’ Woes? Play This Game.

By John Manganaro

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What You Need to Know

  • The general public lacks an understanding of how different proposals to reform Social Security would interact.
  • Because of this, the American Academy of Actuaries has launched an educational tool that would allow users to explore reform ideas.
  • The new tool should be useful to financial advisors as they help their clients learn about Social Security, says a pension actuary.

Social Security’s trust fund reserves are projected to become depleted in the 2030s, potentially leading to a forced and sizable cut in payable benefits unless legislative changes are adopted.

This basic point is well understood by the general public, according to the leadership of the American Academy of Actuaries, but there is much less understanding of the myriad approaches that have been proposed by lawmakers to fill the Social Security funding gap.

Even more elusive, according to Linda Stone, the academy’s chief public policy liaison for pensions, retirement and Social Security, is an accurate understanding of the way the different proposals to reform Social Security would interact — both from a benefits adequacy and a program funding perspective.

As Stone explained on a recent conference call with reporters, Congress will need to evaluate very different reform options with complex and wide-ranging effects. Options include making higher levels of income subject to the portion of payroll taxes dedicated to Social Security or raising Social Security’s normal retirement age.

Other proposals involve revisiting spousal and survivor benefits to ensure they help retirees stay out of poverty. All in all, it can be hard for even the financially savvy to understand the different options and the impact they would individually and collectively have on the Social Security program.

This is why the Academy has launched the new interactive Social Security Challenge education tool, which allows users to explore reform ideas and glean information about their effects — while going through some of the tough choices facing lawmakers and the public.

During the call, Stone said the new educational tool should be useful to financial advisors as they help their clients learn about Social Security, noting that users can access guided dialogs that help them understand key aspects of Social Security’s financial footprint. For example, the tool clarifies that Social Security isn’t just going to disappear in the 2030s.

“Once they have gone through these dialogues, users can then select among various reform options, and they get to see the financial impacts and benefit impacts of these options,” Stone explained. “The goal is to help people understand the different policy options that are out there in the public debate right now. The results are often counterintuitive.”

For example, Stone explained, many Americans fail to consider that financial balance can be achieved while benefits are also increased — so long as the extra costs are addressed by revenue increases. By the same token, cutting back benefits or increasing the retirement age may not have the financial effects that one assumes.

“A user can play around and see the impact that reintroducing the Social Security payroll tax at different higher income levels could play,” Stone said. “Or they can see the impact of raising the tax rate gradually over time, and the user can go back and revise their selections.”

Stone said the real goal of the tool is to help financial professionals and their clients learn about the wide variety of options available to address the solvency issue. One interesting early takeaway, she said, is seeing people select options that they think will easily fill the funding gap, such as an increase in certain taxes, only to realize that more is needed.

“The real lesson you get from playing with the tool is seeing that it is likely that a combination of reforms will be needed to fully restore solvency,” Stone said. “The academy is hoping the challenge will improve the public debate, especially as we see more discussion of Social Security solvency among policymakers and in the news.”

(Image: Adobe Stock)

John Manganaro

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