How to Tune-Up Social Security

En español | In just 21 years, Social Security will be able to pay only three-fourths of its promised benefits, an outlook that guarantees debate about the future of — and the meaning of — Social Security in American life. Yet the projected shortfall is not the only challenge facing the program and those who depend on it. Changes in lifestyle, demographics and the economy are bringing insecurity to many older Americans.

See also: Social Security and older women.

Experts have put forth a number of proposals that in some combination could sustain Social Security for the long haul, while making it more helpful and fair. Here are 10 options now on the policy table in Washington:

1. Increase the cap

You make payroll tax contributions to Social Security on your earnings up to a limit ($110,100 in 2012). If you're like most workers, you earn less than the cap. Increasing the cap to $215,400 — so that 90 percent of U.S. earnings are covered — would reduce Social Security's shortfall by about 36 percent. Eliminating it altogether would end almost all of the shortfall in one stroke. Supporters say that raising the cap would be fair and that the amount would not be onerous. The main argument against such a rise is that high earners already get less of a return on contributions than lower-income workers, because benefits are progressive by design. Also, raising the earnings base would amount to a big tax hike on high earners.

2. Raise the payroll tax rate

In recent years, wage earners have paid a Social Security tax of 6.2 percent on earnings up to the income cap, as have their employers. (Congress temporarily cut the employee share to 4.2 percent in 2011 and 2012 as a way to boost the economy.)

Raising the tax rate to 6.45 percent for both employees and employers would eliminate 22 percent of the shortfall and could be phased in. Critics voice concerns about the economic impact and say employers might respond by cutting other payroll costs, such as jobs.

Other ways to raise revenues include increasing income taxes on benefits. Taxing the money that goes into "salary reduction plans," which let you divert pretax income to health care, transit and other uses, could reduce the shortfall by 10 percent. But such a move would hit consumers who may rely on such accounts.

3. Consider women's work patterns

Women workers — single or married — tend to get lower benefits because they're paid less over the course of their careers and because they are more likely than men to take time off from paid employment for caregiving or child-rearing. One proposal would give workers credit for at least some of the time spent caregiving or child-rearing. At the same time, a non-married woman potentially gets a much smaller benefit (depending on her earnings history) than a nonworking wife because she can't rely on a higher-earning spouse for benefits. Measures addressing these issues would be gender-neutral, so they could also help some men. The cost of such a proposal would have to be offset, however, or it could increase the shortfall.

4. Adjust benefits

Benefit cuts are nothing to cheer about, but they would save money. They could be structured in a way that doesn't hurt current or near-retirees and low-income individuals. Any changes could be phased in after a long lead time, giving younger workers years to adjust their financial plans.

Still, reducing benefits for modest-income people could affect their standard of living in retirement. Reducing benefits for higher earners could undermine the broad public support for Social Security as a program in which everyone pays in and everyone gets benefits.

Next: Should the full retirement age be raised? »