Depending on who you talk to, the future of Social Security iseither in the toilet or completely salvageable. So who do youbelieve?

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The U.S. Social Security Administration’s 2012 annual report forSocial Security reiterated what the report has said for two years,that the program “cannot sustain projected long-run program costsunder currently scheduled financing, and legislative modificationsare necessary to avoid disruptive consequences for beneficiariesand taxpayers.”

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According to the SSA, the Social Security trust fund only hasenough funds to pay full benefits through 2033, three years earlierthan was projected in 2011.

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After that, it would have enough tax income to pay aboutthree-quarters of scheduled benefits through 2086. “Under currentprojections, the annual cost of Social Security benefits expressedas a share of workers’ taxable earnings will grow rapidly from 11.3percent in 2007, the last pre-recession year, to roughly 17.4percent in 2035, and will then decline slightly before slowlyincreasing after 2050,” the SSA stated.

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Most people agree something must be done to shore up SocialSecurity, but how that’s accomplished is a different story.Politicians have bickered about Social Security for years, andwhile neither side of the political aisle advocates scrapping italtogether, numerous proposals have surfaced that could extend thelife of the program.

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The AARP highlighted the top proposals that have been put forthby politicians and others to save or fix Social Security, includingraising the full retirement age to 68, raising the payroll tax capand recalculating cost of living adjustments.

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Tiffany Lundquist, an AARP spokeswoman, said her organizationisn’t taking a position on any one proposal since there are nolegislative ideas on the table to change the Social Securityprogram. What AARP is doing is touting a new program called,“You’ve earned a say,” which makes sure “Americans are aware of thedifferent options for Social Security and Medicare and understandwhat those options would mean for them and their families,” shesays.

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“So going forward, when we see legislative proposals inWashington, Americans can make their voices heard about how theywant it strengthened.” Lundquist added AARP is “making sure moreAmericans are engaged in the conversation and it is not justdecisions being made by politicians in Washington.”

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The proposals

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In 1983, Congress began a process that gradually will raise thefull retirement age to 67 for those born in 1960 or later.Recently, it was proposed to raise the full retirement age evenhigher, leaving the early retirement age at 62. The caveat fortaking early retirement would be that a recipient’s monthly benefitwould be reduced even further, by about 6 to 8 percent, for eachyear that the full retirement age increases, according to AARP. Oneproposal would raise the full retirement age to 68 by 2028, whichwould solve about 18 percent of the funding gap.

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Another proposal would increase the full retirement age by twomonths each year until it reached age 70 in 2040. According to theAARP, that would fill 44 percent of the funding gap.

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Those in favor of the proposal say it’s necessary because oflonger lifespans. By forcing people to work longer or take reducedbenefits over time, their retirement benefits wouldn’t have to lastfor as many years. Opponents say raising the retirement age is abenefit cut that will hurt low-income workers. Longevity indexingis another proposal that would automatically modify Social Securityto pay smaller monthly benefits as lifespans increase, according tothe AARP.

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Reducing the monthly payments could be accomplished byincreasing the age at which a person becomes eligible for fullbenefits or by changing the formula.

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Those in favor and those opposed to longevity indexing give thesame arguments as for extending the full retirement age.Recalculating the COLA is another proposal. The COLA is based onthe consumer price index. One option would be to use a chainedconsumer price index, which would apply a different formula to thesame goods and services data, but would lower retirement benefitsover time.

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This would fill about 23 percent of the funding gap, accordingto AARP.

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Using an elderly index would reflect specific spending patternsof older Americans, especially how much more they spend on healthcare, and would adjust the COLA higher to account for that. Thisoption actually would increase the funding gap by 16 percent,according to AARP.

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Increasing the payroll tax cap is another proposal that wouldaid the Social Security funding gap. The tax applies to annualearnings up to $110,100. Anything earned above that isn’t taxed forSocial Security.

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Raising the cap to cover a higher percent of total earningswould help alleviate Social Security’s funding gap.

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Those in favor of the increase say it wouldn’t affect too manypeople because only 6 percent of the population makes more than$110,100 a year, and it would help keep Social Security strong foryears to come.

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Opponents say raising taxes would impact how much money peoplewould have to spend on their day-to-day expenses and only hurt themiddle class. They also say the increase would only solve SocialSecurity’s problems for about eight years and then something elsewould have to be done.

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Other proposals include eliminating the payroll tax cap,reducing benefits for higher earners, increasing the payroll taxrate, taxing all salary reduction plans, allowing all newly hiredstate and local government workers to be covered by SocialSecurity, increasing the number of years used to calculate initialbenefits and beginning means-tested Social Security benefits.

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The politics

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Mike Tanner, senior fellow at The Cato Institute, doesn’tbelieve the Social Security program will go away, but he calls thesystem a Ponzi scheme “if Ponzi had a gun. A Ponzi scheme breaksdown ultimately because it can’t force people to contribute oncethe burden becomes too high, so then it collapses. Social Securitycan force people to contribute no matter how high the burden,” hesays.

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To bring the system into fiscal balance, you have to increaserevenue or decrease payouts,Tanner says. “I think the answer thereis to decrease payouts,” he claims.

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One way to do that is to change Social Security’s benefitscalculation from a wage growth model to an inflation-adjustedmodel.

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Social Security uses a person’s top 35 years of income tocalculate the amount of benefits they receive in retirement, hesays. The problem with that formula is that the wages earned 35years ago are not the same dollar amount today, he says.

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Most people would adjust those early year earnings forinflation, which would revise the retirement benefit calculationdown. The way the Social Security system is set up, a worker whoretires this year would receive higher benefits than the worker whoretired last year, he says.

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Using wage growth over 35 years “is a percentage or apercentage-point-and-a-half higher than inflation rates,” Tannersays. Using an inflation-adjusted model would place everyone at thesame starting point, which “would bring the system into balance.”Doing this would make it a worse deal for younger workers becausethey would pay the same amount in Social Security taxes but receivefewer benefits than promised.

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To offset those losses, he recommends allowing younger workersto put some of their Social Security taxes into a 401(k)-style planinstead.

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This would shift some of the risk from the government’sshoulders onto the individual’s. As some of that money shifts outof the program into a defined contribution plan, that would leaveless money in the Social Security system to “pay grandma,” hesays.

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“We will have to find a way to finance that.” Either way, thecountry will have to pay out to solve problems with the program.Tanner advocates paying less now instead of waiting when the debtcomes due and then paying more. Merton Bernstein, an expert onSocial Security and the Walter D. Coles Professor Emeritus atWashington University in St. Louis, says it wouldn’t take much toensure Social Security’s viability 75 years into the future. Headvocates increasing the payroll tax cap to cover 90 percent oftotal income instead of the current 84 percent.

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Increasing FICA 1 percent on both employees and employers wouldensure Social Security’s ability to pay in full for the next 75years, he says, “and that would not diminish real income becauseearnings are expected to exceed 1 percent a year from now into theindefinite future [once we are out of the recession].”

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Most polls show people are more interested in boosting taxesthan cutting benefits. “I’m a great believer in the democraticpolitical process, but there is a disconnect [between] what peoplewant and what Congress is seriously considering,” he says.

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Tanner says he doesn’t believe the government will do anythingin the near future to solve the Social Security crisis.

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He says Republicans are afraid to touch the social program nowbecause they got burned under George W. Bush, when potentialchanges to the program created a major backlash from the public.Part of the problem is that the percentage of people in each agegroup that votes is equivalent to their age.

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“As long as that’s the case, the benefits will go to the70-year-old and the bill will go to the 30-year-old,” Tanner says.“Most young people vaguely understand that Social Security is notgoing to be there for them or it won’t pay them a whole lot ofmoney.”

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