American Academy of Actuaries Launches ‘Social Security Challenge’ App

With the threat of Social Security insolvency by the year 2035, the American Academy of Actuaries has released an app to educate people about various reform options that could eliminate the Social Security shortfall. 

The app, called “The Social Security Challenge,” allows users to travel through a virtual town and learn about residents’ different views on reform ideas to address the Social Security financing issue.  

In the app’s finale, users can develop their own proposed reform approach by picking and choosing from a menu of possible options and seeing how well their combination works to address the solvency issue.  

These options include changing the cost-of-living adjustment, raising the normal retirement age, reducing family benefits or benefits for future retirees, increasing workers’ payroll tax rate and more. 

Linda Stone, and actuary and the senior pension fellow at the academy, said in a press briefing on Tuesday that the organization is contacting policymakers to educate them about the breadth of reform options and those options’ impact on the system’s solvency and on ordinary Americans.  

In addition, Stone said there is an opportunity for plan sponsors to take advantage of the app and use it as a way to educate employees. 

“I think there’s been a lot of focus by plan sponsors to provide a lot of financial education to their employees,” Stone said. The app “can help educate workers about this key component of their retirement security, as they think about how [Social Security] can mesh with what they’re doing through the plans that the plan sponsor may offer—whether they’re defined benefit or defined contribution plans.” 

According to research conducted by the academy, if changes to the Social Security program are not implemented before 2035, only 80% of scheduled benefits would be payable after depletion in 2035, declining to 74% by 2096. The Congressional Budget Office in December forecast that U.S. retirees could see a 23% reduction in promised Social Security benefits by 2034 if no tax increases, benefit cuts or some combination are made before then. 

In the Social Security Challenge app, users have the option of raising workers’ payroll tax rate, which is currently at 12.4%—split evenly between the employer and the employee—in order to bolster the Social Security fund. 

Stone pointed out that demographic challenges are also contributing to the Social Security deficit in that there are fewer workers today paying payroll taxes compared with the number of people who are receiving, or will soon receive, Social Security benefits. Every day, on average, 10,000 Baby Boomers turn 65, and Stone said there are not enough workers currently paying taxes to keep the system in a financially secure place as that generation retires.  

The app also offers users the option to raise the current 35 years of earnings needed to calculate one’s monthly Social Security benefit to 40 years of earnings. Stone explained that if one stops working before they start receiving benefits and has less than 35 years of earnings, this will impact their monthly benefit amount.  

“If people have taken time out of the workforce for caregiving responsibilities, as many women have, and are thinking about retiring without having 35 years of earnings, [they need to] understand that counts as zero and [will impact] their average,” Stone said.  

Another possible reform option for Congress is increasing the normal retirement age, as well as the earliest eligibility age for receiving Social Security.  

The Academy of Actuaries states in its research that reducing the earliest eligibility age is generally viewed as having a minimal impact on Social Security finances, but an increase in the NRA would increase the maximum number of years of reduced benefits by distancing the age further from its current point of 62. 

Users of the new app can also see the effects of increasing the Social Security deficit by selecting certain options, such as increasing the minimum Social Security benefits for individuals who fall below the poverty line. If selecting this option, users would have to balance out those benefits by increasing payroll taxes or changing the benefit formula. 

Overall, the Social Security Challenge app emphasizes that a combination of reform options are needed to solve the issue of insolvency, and simply raising taxes or reducing benefits alone will not be enough. 

“If timely changes are not made, cutting benefits for future beneficiaries only may not be enough to achieve solvency,” the Academy’s research stated. “Instead, benefits for those retirees already receiving benefits may have to be cut, or Social Security’s income may need to be increased.”