FROM WHERE I SIT

We Can Solve Social Security with a Longevity Neutral Policy

By: David J. Tananbaum

When I visited the White House in 1991, the spokesman in charge of Pension Policy indicated that he was looking for a solution to the “Social Security Problem” that would maintain the current Employer/Employee Contribution Rate. It took me a few years of thinking about his request, an interview with the Chief Actuary of Social Security, and a review of most of the proposals on the subject to develop the concept of “Longevity Neutral” .

I concluded that solving the looming “Social Security” shortfall actuarially would be an easy issue, for me, and our country, once the public recognizes the gigantic achievements in live expectancy improvements that science has forged for us all. I came to the realization that solving Social Security is a Social and Actuarial Issue and not a political issue. That our Social Security system is sound in concept but needs to adjust itself to our expanded stay in this world.

Like any actuarial valuation I perform, on behalf of a plan and its participants, I always look at the valuation on a three dimensional basis. Likewise with the Longevity Neutral concept.

“Longevity Neutral” means extending the actual date a Social Security Member retires to synchronize the improvement of actual longevity. For example, if in 2010 life expectancy increased by 2 months, and the Social Security Normal Retirement Date is 67, then the next Social Security Normal Retirement Date would be March 1, 2011. Of course all Early Retirement and Late Normal Retirement factors would be adjusted actuarially.

Naturally, there will be  individuals that will not accept the idea of their Normal Retirement Date being extended to accommodate the yearly improvements in Life Expectancy. For those individuals, I offer another coupled benefit with the enactment of a Longevity Natural Amendment to Social Security, that of a “Social Security Plus” option.

 A “Social Security Plus” option means that if a participant wants to retire, at his or her original Social Security Retirement Date, with an unadjusted Social Security benefit , such participant can voluntary increase her/her contribution rate to receive a larger Social Security benefit at his/her original Normal Retirement Date. In fact, he/she can start and stop such increased contributions, and the Social Security Administration should be able to compute the actuarially equivalent benefit increase, tailored to each Social Security Retiree’s voluntary contributions.

I estimate a Longevity Neutral Social Security Amendment will reduce the projected Social Security shortfall by more than 60%. Such an Amendment would be almost painless, if other incentives were developed to enable increased retirement savings for all.

DJT

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* Founder of AtPrime Media, Inc. Member of the American Academy of Actuaries (MAAA), and, the American Society of Pension Professionals and Actuaries (MSPPA). Fellow, Conference of Consulting Actuaries (FCA). President  and Founder of National Retirement Programs, Inc.