# Senior Fellow Larry Kotlikoff Testifies on Social Security's Insolvency, Complexity

July 31, 2014

In testimony before the House Ways and Means Subcommittee on Social Security, Larry Kotlikoff, NCPA Senior Fellow and Director of the Tax Analysis Center, explained why the Social Security program is insolvent and in need of reform.

In order to pay full Social Security benefits on time, as promised, Kotlikoff explains that the payroll tax would need to rise by 32 percent immediately. If raising the payroll tax is not an option, Social Security would have to cut all benefit payments by 22 percent in order to keep the program afloat.

But putting aside these financial realities, Kotlikoff identifies another set of problems with the program: complexity. Even the formulas used to calculate benefits are confusing! For example, Kotlikoff writes out the perplexing formula used to calculate the benefits owed to a married spouse at a specific age: PIA(a)x(1-e(n))x(1 + d(n))xZ(a)+max((.5xPIA*(a)-PIA(a)x(1+d(n)))xE(a),0)x(1‐u(a,q,n,m))xD(a).

Determining when to collect benefits is important, but few people realize when they should do so. For example:

• A 62-year-old couple that has contributed the maximum amount to the Social Security program would be eligible for benefits at age 62. If they take their benefits then, their lifetime benefits will be \$1.2 million.
• However, if they wait until age 70 to collect their benefits, lifetime benefits will total \$1.6 million.

While the majority of households will see smaller benefits than this hypothetical couple, Kotlikoff explains that the benefit difference is still significant. There are a number of additional factors that retirees should consider when deciding when to collect benefits, he says, yet too few people are aware of them: spousal benefits, widower benefits, divorcee benefits, deeming, Delayed Retirement Credits, file and suspend options, start-stop-start strategies, and more.

A video of the hearing is available online.

Source: Laurence Kotlikoff, Hearing on "What Workers Need to Know About Social Security as They Plan for Their Retirement," testimony before the Subcommittee on Social Security, Committee on Ways and Means, U.S. House of Representatives, July 29, 2014.

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