This retirement expert says the US is ‘past the point where we can fix Social Security by cutting benefits’ — here’s what she's recommending instead

Expand Social Security’s revenue sources

Ghilarducci is firmly in the “put more revenue in it” camp.

“We are past the point where we can fix Social Security by cutting benefits,” she said in a recent interview with Bloomberg. “That is a non-starter because the benefits for Social Security are keeping almost all of the people on Social Security (everybody below a certain amount [of income]) above the poverty level.

“It is a vital anti-poverty device. Cutting it would just make the system even more grim. So we need [to pump] more revenue into it.”

The Social Security Act of 1935 established a support system funded by contributions in the form of taxes on individuals’ wages and employers’ payrolls, rather than directly from government funds.

By the 1940s, actuaries and policymakers started to express concerns that the payroll tax rates might not be sufficient to cover the future costs of the program — especially with an aging population and a growing number of beneficiaries. Ghilarducci is still arguing that case today.

“We should not just be dependent upon the payroll tax to fund the whole thing,” she told Bloomberg. “There are many easy fixes to Social Security … it really requires more money from other pots, [like] capital gains. There’s a lot of other places [where] we can get Social Security revenue.

“The key thing, as an economist, is whether or not the amount of money needed will break the bank, will break the economy — and we’re nowhere near that.”

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Funding shortfalls

Not everyone is convinced by Ghilarducci’s stance of throwing more money at the matter — especially when the U.S. is in debt by almost $35 trillion and has a national deficit of almost $1.3 trillion.

Social Security is the largest government spend, according to Treasury data, accounting for 22% of government outlay so far this year.

The demands on the program are only going to grow. In 1940, the life expectancy of a 65-year-old was almost 14 years; today, it is over 20 years, according to the Social Security Administration. Furthermore, the number of Americans 65 and older is expected to increase from about 58 million in 2022 to about 75 million by 2035.

This year, around 68 million Americans will receive a Social Security benefit every month, totaling about $1.5 trillion in benefits paid during the year. That dollar amount will grow as more Americans reach retirement age and collect benefits for longer.

To combat that, some parties have argued that the retirement age should be lifted from 65 to more like 67 or even 70. Others have suggested making cuts to the program and altering its underlying structure to prevent future insolvency.

As Ghilarducci pointed out, there are many ways to try and “fix” Social Security; the problem is that no one in Washington can agree on what’s the best foot forward.