Do you prefer adjusting COLAs or the full retirement age (FRA) to ensure the survival of the U.S. Social Security program? To decide, you might want to know how different solutions will affect high and low income earners.
One way to solve Social Security insolvency is to decrease COLAs. COLAs (Cost of Living Adjustments) typically increase the amount that Social Security recipients receive each year. For example, if a person got a $100 check during year 1 and the inflation rate was 3%, then a COLA would mean a $103 check during year 2. If COLAs are diminished then lower income and older beneficiaries will be hit hardest.
Another solution is to increase the retirement age when people start to collect Social Security. A decade ago, the full retirement age was 65. While now it will be 66 for people who are currently 62, starting with individuals born during 1960, the retirement age will be 67. If the retirement age is the solution, then higher earners will feel it more than others.
COLAs and FRA solutions take us to the benefits received side of the problem. Revenue increasing solutions such as higher taxes are also possibilities.
The Economic Lesson
Social Security is a progressive program with low earners collecting more than they paid in taxes and high earners getting much less. According to the August 2010 report from the Trustees of the Social Security Trust Fund, during 2014 deficits will begin because of the baby boomers. During 2037, when the trust fund will be depleted, benefits will decrease.