Debt Deal: What Changes Might Be in Store for Social Security?

Last Updated Aug 3, 2011 12:20 PM EDT

The devil's in the details of the debt deal. Say that three times fast and your tongue will get just as twisted as our politicians' did in recent weeks.

The recent debt compromise calls for a bi-partisan committee to make recommendations to Congress by Thanksgiving for reducing entitlements, including Social Security and Medicare. These programs are protected, however, from the automatic reductions in entitlements that will go into effect if the bi-partisan committee doesn't come to any agreement, or if Congress doesn't adopt their recommendations.

What could this mean for your retirement planning? Let's look at recent proposals to change Social Security benefits, to glean what this bi-partisan committee might recommend.

The following members of Congress recently made proposals that were subject to cost analyses conducted by the Office of the Chief Actuary of Social Security (I'm assuming a proposal is serious if a member of Congress requests such an analysis):

  • National Commission on Fiscal Responsibility and Reform, the bi-partisan panel headed by former Senator Alan Simpson (R-Wyoming) and Erskine Bowles
  • Sen. Kay Bailey Hutchison (R-Texas)
  • Sens. Paul Rand (R-Kentucky), Mike Lee (R- Utah), and Lindsey Graham (R-South Carolina)
  • Sen. Tom Coburn (R-Oklahoma)
  • Rep. Cynthia Lummis (R-Wyoming)
  • Rep. Peter DeFazio (D-Oregon)
These proposals focus on retirement ages, the calculation of benefits, the calculation of the cost-of-living adjustment (COLA), and increases in Social Security taxes on wealthy individuals. It's noteworthy that the proposals by Republicans focus on reducing benefits, the lone proposal from a Democrat would raise Social Security taxes for wealthy individuals, and the bi-partisan Simpson-Bowles commission combined changes to both benefits and Social Security taxes.

It's seems pretty clear that for a bi-partisan committee to reach any agreement, changes in both benefits and taxes will be necessary. The committee's composition will give some good indications; if there are too many hardliners in either camp, the committee could easily become deadlocked on Social Security issues.

Let's examine in detail each of the changes under consideration.

Next: Proposed changes to Social Security's retirement ages

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.