Everyone in Washington, D.C., knows that something needs to be done to preserve Social Security. Without action, the federal program's trust funds will run out of money as early as 2033. The disagreements lie in what should be done.
President Biden recently met with Sen. Bernie Sanders (I-Vt.) about some potential Social Security reforms. However, a bipartisan group led by Sen. Bill Cassidy (R-La.) and Sen. Angus King (I-Maine), who caucuses with Democrats, is also working on solutions. This group is considering dozens of ideas, but a few that would make an especially big impact have already been leaked. Here are four huge Social Security changes that could be on the way.
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1. Raise the full retirement age
News website Semafor reported last week that the bipartisan group headed by Sen. Cassidy and Sen. King is considering raising the full retirement age for Social Security from 67 to around 70. Changes to the full retirement age would be made gradually, according to two sources knowledgeable about the group's efforts who spoke with Semafor.
The full retirement age was gradually raised in the past (from 65 to 67) as part of bipartisan reforms. That increase didn't fully address Social Security's long-term funding issues but did help bolster the program for decades.
2. Change the benefits formula
The group is also looking at changing the formula used to calculate Social Security benefits. Currently, benefits are calculated based on a person's average earnings over their top 35 earning years. This formula could potentially be revised to use the number of years actually worked with contributions to Social Security.
3. Create a sovereign wealth fund
Perhaps the most controversial idea that's on the table for reforming Social Security is to create a sovereign wealth fund that would invest in stocks to fund retirement benefits. Semafor reported that the plan would involve the federal government borrowing $1.5 trillion or more to be used for investing in stocks. If the investment returns are less than 8%, the payroll tax rate and payroll tax salary cap would be increased to make sure Social Security remains solvent for at least another 75 years.
Creating a sovereign wealth fund is being considered because the stock market usually generates greater returns than Treasury bonds over the long term. The Social Security trust funds currently invest cash in Treasury bonds but put no money in stocks. Note that this is not the same as former Vice President Mike Pence's proposal to allow younger workers to invest a portion of their Social Security contributions. The government would manage the investments of the sovereign wealth fund.
4. Increase benefits
Not every change under consideration is focused on preserving Social Security. The bipartisan group is also looking at increasing benefits.
In a press release, Sen. Cassidy and Sen. King stated that the group is "seeking avenues to increase benefits immediately." They added, "Under what we are discussing, millions would immediately receive more, and no one would receive less." No details were provided to explain how benefits would increase, however.
Will these changes really be implemented?
It's important to note that the bipartisan group hasn't released any official proposal yet. Sen. Cassidy and Sen. King stated in their joint press release that the "conversations are ongoing." They intend to release a full plan as soon as it's finalized.
There's no way to know for sure at this point whether the forthcoming proposals will gain broader support. Some parts of the plan will almost certainly generate controversy. Perhaps none of these four huge changes will actually be implemented.
However, there is ample motivation for reforming Social Security sooner rather than later. As Sen. Cassidy and Sen. King said in their public statement, doing nothing will lead to painful benefit cuts in the not-too-distant future. They noted, "Inaction now will only make it harder later." On that, probably every politician in Washington would agree.
Editor's note: This article has been corrected. The Social Security full retirement age was gradually raised from 65 to 67.
