What does the Heritage Foundation have to say about saving Social Security:Study released May 10, 2011 (Part 6)

“Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” Heritage Foundation, May 10, 2011 by  Stuart Butler, Ph.D. , Alison Acosta Fraser and William Beach is one of the finest papers I have ever read. Over the next few days I will post portions of this paper, but I will start off with the section on Social Security. I am also going to give attention to the thoughts of Milton Friedman on the subject too. Here is the sixth portion:

More Accurate Inflation Protection. The annual cost of living adjustment (COLA) for Social Security, which protects retirees against inflation, will be based on the Chained Consumer Price Index (C-CPI-U), a measure of inflation that is more accurate than the index used currently. The Bureau of Labor Statistics specifically designed this inflation measure to better reflect the way that consumers buy different items as the prices of various products fluctuate.

A More Reasonable Retirement Age. The plan adjusts the retirement age to reflect increases in life expectancy and those anticipated in the future. Under the plan, these changes are phased in gradually. Those nearing retirement are affected only slightly. Over the next 10 years, the age for full benefits rises to 68 for workers born in or after 1959. Over the next 18 years, the early retirement age rises to 65 for workers born in or after 1964. After that, both early and normal retirement ages will be indexed to longevity, which will add about one month every two years according to current projections.

The plan recognizes that a small proportion of workers will be physically unable to work until these ages. It therefore includes an improved disability system to protect them. The reformed disability system ensures that those who are unable to work longer receive a quick and accurate decision on their benefit application rather than facing today’s long delays, and improves today’s often arbitrary decision-making process.

Incentives to Work Longer. Starting immediately, those who work past their full-benefit age receive a special annual tax deduction of $10,000, regardless of income level. For instance, once the new system is completely phased in, a worker earning $50,000 per year who delays Social Security payments will see a $200 per month increase in spendable income.

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