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Social Security -- you fix it.
Play the Social Security game. First one to get to 100 percent solvency wins.
February 4, 2005: 12:59 PM EST
By Jeanne Sahadi, CNN/Money senior writer
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NEW YORK (CNN/Money) – If you're already irritated by the partisan wars brewing over the best ways to shore up Social Security, why not take matters into your own hands?

Before you write your Congressman with suggestions, play the Social Security game created by Ron Gebhardtsbauer, a senior pension fellow at the nonpartisan American Academy of Actuaries.

Gebhardtsbauer has mapped out the effectiveness of 10 solutions that fall under the general categories of benefit reduction, revenue increases and private sector investing.

Pick the options you like and see not only what supporters and opponents say about them, but find out how effective they'll be in making the system solvent after 2042 (or 2052 by some projections). That's when the system is estimated to only be able to pay about 75 percent to 80 percent of promised benefits.

There are many changes Congress could opt for, and Gebhardtsbauer's list is not exhaustive.

For instance, it does not include changing the formula by which future retirees' starting benefits are calculated, which has been the subject of much contention lately.

Privatization is on the list, but, according to the game, the creation of personal investment accounts has zero effect on solvency, something even proponents of those accounts acknowledge.

What does have greater effect -- taking care of half the shortfall -- is if Social Security invested 40 percent of the trust fund's money in stocks.

Closing the gap

But the single most effective solution in the game is eliminating the cap on wages subject to Social Security tax. That alone takes care of 77 percent of the solvency problem over the next 75 years.

Currently, that cap is set at $90,000 of your wages. That's the amount subject to the 12.4 percent Social Security tax – half (6.2 percent) is paid by you and half by your employer. If you're self-employed, you foot the whole bill.

Even though eliminating the cap is powerful, Gebhardtsbauer noted, with every solution there's always a "but."

Since Social Security benefits are based on your earnings over your career, eliminating the wage cap also increases total benefits paid out.

So unless you also raise the retirement age at some point, Gebhardtsbauer noted, eventually the system will run a deficit again, probably in the 75-year-period from 2025 to 2100. That's because life expectancy will continue to increase.

If solvency is the only goal in reforming Social Security, Gebhardtsbauer said, "You don't have to have a huge cut in benefits or increase in taxes."

Of course, everyone's definition of "huge" differs, especially if you're adamantly opposed to raising taxes or cutting benefits. So you may or may not agree with him.

But one thing becomes clear playing the Academy's Social Security game. It's likely to take a couple of changes to fully resolve the eventual shortfall in the system.

For instance, raising the payroll tax by 1 percentage point (meaning you'd pay an extra half percentage point and so would your employer) would resolve 51 percent of the solvency issue.

Here's what the difference means in dollars and cents:

If you make $90,000 in taxable wages, you'd pay an extra $450 a year. That's $17.30 per paycheck assuming you receive 26 paychecks a year.

If you make $45,000 in taxable wages, it's an extra $225 a year, which is an additional $8.65 per paycheck.

To figure out ways to make up for the other half of the long-term shortfall, play the game.  Top of page

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