October 26, 2015 | Commentary on Social Security Reform, Federal Budget

Pro-con: Should the retirement age go up?

We’ve known it for a long time: Social Security has a math problem.

The safety net for our elders takes in too little money to pay for its long-term obligations. Last year, it saw nearly $860 billion go out the door to pay for benefits and administration. Its dedicated tax revenues covered only 91 percent of that amount. Fortunately, the program continues to hold large reserves, built up in past years when revenue was greater than pay-outs.

However, as more Baby Boomers retire, spending will rise faster than income, and program reserves will start to shrivel. According to government forecasts, the reserve fund will be depleted in less than 20 years. At that point the dedicated revenues available to fund Social Security will cover a little less than 80 percent of promised benefits.

If Congress does not change the law before 2034, benefits will have to be cut about 20 percent when the reserve is used up. Something has to give. One possibility: Raise taxes on current and future workers. Nobody likes higher taxes.

Another is to raise the age at which we retire. That would require delaying payouts for tens of millions. Is that a good idea?

No: Raising everyone’s retirement age undercuts a key goal of Social Security, says Gary Burtless

Advocates of the idea usually argue that raising the retirement age makes sense because life spans are rising. If we leave the Social Security retirement age unchanged, the increase in life expectancy means payments from the program must cover more years, even though the number of years we expect workers to remain employed will remain unchanged.

This argument would be more convincing if increases in life expectancy were spread evenly across the workforce. They are not.

Workers who earn low wages throughout their careers have seen little or no improvement in life expectancy. It seems unfair to ask low-earners to take a benefit cut to pay for the added benefits high-earners enjoy because of longer life spans.

Recipes for hiking the retirement age come in many flavors. The simplest is to delay the age at which workers can claim a full Social Security pension. For workers currently in their mid-60s, the full retirement age is 66. For workers born in 1960 and later years, the full retirement age is already scheduled to increase to 67. Most proponents of a higher retirement age think the full retirement age should be gradually raised for people born after 1960 to 68, 69 or 70.

If the full retirement age were increased to 68, workers wouldn’t have to wait any longer to collect their pensions. They could still claim a benefit starting at 62, as they can today. However, their monthly check would be 6 percent to 7.5 percent smaller than promised under the current formula, depending on the age when they first claim a pension.

We raised the retirement age for Social Security recently, so we can learn from that experience. The full retirement age was increased from 65 to 66 starting in 2000. Looking at those who turned 62 that year, research shows that some who were affected by the higher retirement age worked a bit longer, some delayed claiming a pension, and some did both.

Workers who delay claiming Social Security for one additional year, say, from 63 to 64, after the full retirement age is raised from 67 to 68 would see little change in their monthly pension, but would receive it for one less year The delay seems fair if the worker has enjoyed the same improvement in life expectancy as fellow workers. It doesn’t seem so fair if the worker has seen little or no gain in life span.

It’s easy to identify a group that has missed out on recent life expectancy gains — workers who earn low wages throughout their careers. Researchers in the Social Security Administration and elsewhere have found that men near the bottom of the earnings distribution and women with below-average schooling and in families with low incomes have seen little or none of the improvement in life expectancy that higher income groups have enjoyed.

Low-income workers always had shorter life expectancies than workers with higher incomes. New research shows that the gaps in life expectancy are growing.

A key goal of Social Security is to ensure that workers who have contributed to the program throughout their careers enjoy decent pensions and a dignified retirement. Any change in the program to keep it solvent should ensure workers with low lifetime wages receive a decent pension even if they retire at today’s early retirement age. Since these workers have not benefitted from the lifespan improvements most of us have enjoyed, it would be unfair to expect them to work longer to qualify for a decent pension.

Gary Burtless holds the John C. and Nancy D. Whitehead Chair in Economic Studies at the Brookings Institution. Reach him through brookings.edu. He wrote this for InsideSources.com.

Yes: Increasing the retirement age is a fair and reasonable solution, says Romina Boccia

Bumping up the Social Security retirement age is fair and reasonable. It can help shore up the program’s shaky solvency without saddling younger generations with excessive payroll taxes. That’s why the idea attracts broad, bipartisan support. The need to curb the growth in Social Security spending grows with each passing year. The program has run cash-flow deficits for five consecutive years now. Absent policy changes, the deficits will only get worse.

Congress should reject indiscriminate benefit cuts or higher taxes. The former harm the most vulnerable beneficiaries the most; the latter penalize young workers and their families. Instead, lawmakers should modernize the outdated program. And increasing the retirement age, gradually and predictably, should be a top priority on lawmakers’ reform agenda.

A major factor driving Social Security spending higher is that people are living longer, healthier lives. More people reach retirement age, and once they do, they live longer.

According to data released by the Social Security Board of Trustees, life expectancy increased by more than 15 years for both men and women, between 1940 and 2014. Life expectancy at age 65 also increased significantly, enabling seniors to draw benefits for longer than in the past. Men who reach age 65 in 2014 live on average more than six years longer than did men who reached age 65 in 1940. For women, the difference is even larger at seven years.

Yet, Social Security’s eligibility age is slated to increase by only two years — to age 67 — and even that “extended” age won’t take effect until 2027. Life expectancy tables and fiscal prudence suggest that’s simply not enough. Lawmakers should increase the Social Security retirement age, gradually and predictably, to reach 70 over the next two decades, and then index the age to life expectancy.

Those who resist changing the retirement age cite two main reasons for their opposition. First, they cite research showing that life expectancy has increased more rapidly for higher-income individuals than for lower-income individuals. Thus, they argue, increasing the retirement age would be unfair to lower-income individuals. They also often insist that it’s simply unfair to ask Americans — especially those who perform manual labor — to work more years before becoming eligible for benefits.

Regarding the first charge, the Urban Institute debunked this claim in 2006, explaining that the Social Security program provides certain protections for lower-income groups. One is that disability beneficiaries are unaffected by the change in the retirement age and they tend to be lower income. Another is that much of the difference between life expectancy among income groups occurs before the retirement age is reached.

The second concern, that some Americans simply can’t work longer, is largely assuaged by the existence of the disability program, which is one option for individuals who cannot work until the full retirement age. Regarding the charge that increasing the retirement age somehow cuts short the retirement of the healthier, older population, individuals have the option of saving on their own to take retirement at whichever age they choose. On the flip side, it would be deeply unfair to require American workers to pay higher payroll taxes to subsidize longer retirements.

Nevertheless, policymakers should be rightfully concerned that Social Security unfairly and inefficiently redistributes resources from lower-income Americans to higher-income Americans. Contrary to common beliefs that Social Security redistributes from the rich to the poor, research indicates that the program may actually be slightly regressive when considering lifetime wage profiles.

In addition to increasing the retirement age, policymakers should adopt several other benefit changes to return the Social Security program to its original goal of protecting against poverty due to old age. Lawmakers should implement a flat benefit amount for all eligible recipients — one sufficient to keep beneficiaries above the poverty level. This approach would help those individuals who need it the most. Additional means-testing provisions would ask those who can afford to pay for more of their own retirement expenses to do so.

Reforms that improve the program’s progressivity and fairness, while protecting younger Americans from undue taxation and debt, are the way to go.

Romina Boccia is The Heritage Foundation’s Grover M. Hermann research fellow in federal budgetary affairs and the deputy director of its Roe Institute for Economic Policy Studies. Follow her on Twitter: @rominaboccia.

About the Author

Romina Boccia Deputy Director, Thomas A. Roe Institute for Economic Policy Studies and Grover M. Hermann Research Fellow
Thomas A. Roe Institute for Economic Policy Studies

This piece was originally distributed through InsideSources