Forget Raiding Social Security -- Here's a Smarter Alternative

Social Security helps more than 62 million people every month get the financial support they need. Most of those collecting Social Security benefits are retirees who've worked for decades in the expectation that they will receive something from the program when they stop working. For many of the 43 million retired workers who get monthly checks from Social Security, the first time they ever got any money from the program was after they had worked an entire career.

Recently, lawmakers in Washington have suggested a couple ways that people could claim Social Security benefits earlier in life. One proposal would target those wanting payments for family leave following the birth of a child, while another is looking at ways to pay down student loan debt. In both cases, however, the trade-off is accepting less money in retirement. That's not financially acceptable for most Americans, so the smarter alternative involves following a roadmap that Social Security has used before to expand benefits beyond the scope of retirement income.

2 ideas Washington has for you to get early access to Social Security

A couple different proposals have suggested allowing Americans to get near-term financial support in exchange for giving up a portion of their future Social Security benefits. Under one proposal, those who agreed to put off being able to claim Social Security would be able to have a portion of their student loan debt paid off. In one version of legislation as proposed late last year by Rep. Tom Garrett (R-Va.), people would be allowed to receive $550 in debt forgiveness in exchange for having their full retirement age and their eligibility date for claim benefits pushed one month later. With a maximum of 73 credits, that would open up more than $40,000 of immediate funding -- but at the cost of being treated as though their full retirement age was 73 instead of 67 and not being able to claim even early benefits until age 68.

The other proposal has gotten more attention from commentators and the public at large. Under a proposal championed by Sen. Marco Rubio (R-Fla.), new parents would be allowed to get family leave income for a period of time following the birth or adoption of a child. Again, the trade-off would be that they'd have to accept a delay in their retirement benefits under Social Security. The calculations under the Rubio proposal are complex and subject to adjustment based on actuarial factors, but the general idea behind the legislation is similar to that of the student loan debt proposal -- just with less flexibility on the part of the parents.

The pros and cons of the proposals

Those who support the proposals like the fact that people can elect whether to use them. In particular, those who prefer the family leave idea to mandatory worker-provided leave proposals argue that a voluntary benefit under Social Security would still leave the field open to other competing ideas, including private employers who offer employees paid leave independently. If a worker already had private benefits through work, they could leave their Social Security retirement benefits intact by not claiming them for family leave.

Yet the obvious downside in both cases is that those who elect early opportunities to divert money from Social Security would end up with less in retirement benefits. In some cases, the impact would be huge, with those with tens of thousands of dollars in student-loan debt potentially losing many times that amount in retirement benefits -- even after considering the impact of inflation over the course of a career.

An alternative to benefit reduction

Having people pay for the benefits they want is a fiscally responsible way to handle predictable needs. For both student loan debt and family leave, implementing a mechanism to have participants pay back their advances through payroll or other taxes would leave vital retirement benefits untouched.

Implementing new payroll taxes to cover additional benefits under Social Security has precedent. The disability insurance program was added to Social Security in the late 1950s, and it received a separate payroll tax percentage of its own. The trust funds for disability benefits and retirement benefits are technically distinct, allowing each to function on its own.

Yet there's no reason Social Security would necessarily have to charge everyone a payroll tax. Limiting additional taxes to those who actually take the benefit would result in a larger tax, but it would be one that accurately reflected the value of what the recipient got from the program. With the goal of revenue neutrality, such a tax would more closely approximate a loan with regard to its repayment terms. But provisions that would allow would-be parents to start paying into the system before they had children could reduce their cost.

Looking for solutions

Social Security is primarily for retirement, and raiding retirement benefits in favor of more immediate financial needs jeopardizes the entire original purpose of the program. By looking more closely at allowing would-be users of recent Washington proposals to have a way to get those benefits without hurting their retirement benefits, Social Security could avoid a big problem down the road.

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