Time is running out to reform Social Security, according to many analysts. The country is facing a long-term budgetary shortfall, and fixing Social Security would improve the U.S’s international standing with foreign lenders, minimizing the risk of a significant jump in interest rates.  

Starting this year, Social Security will take in less revenue than it pays out.  The problem will persist through 2013, jump to a surplus for two years, and then permanently fall into the red. When the system fails the government will have to make up the difference by using the surplus built up for this purpose.  

Well, they would use the surplus if it was still around, but the government has had to spend the money elsewhere.  What’s left of the surplus will provide 100% of benefits owed until close to 2037, but will only pay three quarters of total benefits owed after that.  

It sounds like there is more time than there really is, however, since to avoid the problem action needs to be taken now.  There are several options on the table that may help the problem, but a combination of all of them will almost certainly be necessary to completely cure it.  

The most talked-about option is to simply increase the retirement age, a reasonable option given the increased life-expectancy of our generation.  Right now the retirement age is scheduled to increase to 67 in 2027, but experts say that’s not soon enough.

Ron Gebhardtsbaur, a professor of actuarial science at Pennsylvania State University, says that increasing the retirement age by one month every two years starting in ten years will fix 20% of the shortfall, and could cure %30 percent if pushed to 67 in the next six years.  

Another option is called “progressive indexing.”  Under this measure, middle and higher income workers would receive lower benefits than what they can currently expect, but lower income workers benefits would remain unchanged.  

Hardly fair, but it makes sense that middle and high income workers would be able to save more money over the course of a working career towards retirement and would not require benefits as extensive.  Low income workers often live paycheck to paycheck, and may never be able to put away extra for retirement.  

The final option involves raising the cap on payroll taxes.  Right now the first $106,800 of your wages are subject to the payroll tax, but raising it to the first $150,000 would help the problem significantly.  A similar option is to simply increase the Social Security payroll tax outright and leave the cap where it is, or to do both to a lesser degree. 

None of the options will be popular, so politicians are dragging their feet on addressing the problem, especially when there are so many other options to discuss right now.  Let’s hope lawmakers don’t put the Social Security issue on the back burner for too long. You can only ignore a reality for so long.