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Partial Benefits Increasing to Full

 

An alternative to bluntly raising the Social Security retirement age or reducing benefits.


F
irst, there would be no change in the retirement program for anyone born in or before 1955. For everyone else, the following changes apply:

Full retirement age (FRA) is redefined as the earliest age at which an unreduced partial retirement benefit is payable. The basic benefit, or "primary insurance amount" (PIA), is fully payable at age 70.

For persons born in or after 1956 but not after 1960, retirement benefits would be 75% of full benefits at age 65, 80% at age 66, 85% at age 67, 90% at age 68, 95% at age 69, and 100% at age 70 or older. Persons within this birth-year range would also have the option, before they retire, of investing a maximum of 5% of their payroll-tax or self-employment-tax contributions in any securities and other instruments which maintain a sufficiently high financial rating, as determined by the U.S. Securities and Exchange Commission. Each seller of any such instrument would charge a regulated administrative fee, which includes a premium payment to an Investment Deposit Insurance Corporation to cover any loss of the actual total principal invested greater than that premium.

However, if a person opts to invest any portion of his contributions during a calendar year, the amount of his credited earnings for that year would be proportionately less than his actual earnings, and may reduce the amount of his full basic benefit.

The entire proceeds of each person's investments (total principal plus any gains) would be available to him when he attains age 65, or to his estate if he dies earlier.

This same availability rule also applies to all persons born after 1960.

For persons born in or after 1961 but not after 1965, retirement benefits would be 50% of full benefits at age 65, 60% at age 66, 70% at age 67, 80% at age 68, 90% at age 69, and 100% at age 70 or older. They would also have the option, before they retire, of investing a maximum of 10% of their contributions in the above described instruments.

For persons born in or after 1966 but not after 1970, the benefits would be 25% at age 65, 40% at age 66, 55% at age 67, 70% at age 68, 85% at age 69, and 100% at age 70 or older. They would also have the option of investing a maximum of 15% of their contributions.

In the following birth-year range, full retirement age is 66.

For persons born in or after 1971 but not after 1975, benefits would be 20% at age 66, 40% at age 67, 60% at age 68, 80% at age 69, and 100% at age 70 or older. They would also have the option of investing a maximum of 20% of their contributions.

In the following two ranges, FRA is 67.

For persons born in or after 1976 but not after 1980, benefits would be 25% at age 67, 50% at age 68, 75% at age 69, and 100% at age 70 or older. They would also have the option of investing a maximum of 25% of their contributions.

For persons born in or after 1981 but not after 1985, benefits would be 10% at age 67, 40% at age 68, 70% at age 69, and 100% at age 70 or older. They would also have the option of investing a maximum of 30% of their contributions.

The table below shows respective benefits and maximum investment percentages for all birth-year ranges.

Birth-year
range
Percentage of PIA at age–Max. percentage of
contributions that
may be invested
656667686970
1956-196075808590951005
1961-1965506070809010010
1966-1970254055708510015
1971-1975--2040608010020
1976-1980----25507510025
1981-1985----10407010030
1986-1990------306510035
1991-1995------206010040
1996-2000------105510045
2001-2005--------5010050
2006-2010--------4510055
2011-2015--------4010060
2016-2020--------3510065
2021-2025--------3010070
2026-2030--------2510075
2031-2035--------2010080
2036-2040--------1510085
2041-2045--------1010090
2046-2050--------510095
2051-----------100100

Second, early retirement age would remain 62 for every person regardless his birth year. Full retirement benefits are still reduced 5/9 of 1 percent a month for the first 36 months immediately preceding full retirement age, and 5/12 of 1 percent a month for any additional months. Investment proceeds, however, do not become available before age 65.

Third, for insured workers who postpone their retirement beyond FRA, benefits are increased for each month of nonpayment beyond that FRA up to age 75. This increase, or "delayed retirement credit," is potentially available for any or all months following attainment of FRA. The total credit possible per year for delayed retirement credits is 8 percent.

Fourth, there is no increase in the payroll tax or self-employment tax.

Finally, fundamentally transforming the Social Security program so it becomes increasingly less a single payer of retirement benefits and more a government option would put it on much sounder financial footing, especially when those born in the later ranges reach retirement age.

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