Posted on 12 May 2011
By Mark Miller
We’re all living longer, so raising the Social Security retirement age is a no-brainer–right?
It’s an article faith among many economists and policymakers debating ways to “reform” Social Security in the context of cutting the federal budget deficit. And it sounds reasonable.
Most recently, the higher retirement age idea was trotted out by a series of speakers at a conference sponsored by the Milken Institute, founded by Michael Milken, the junk bond king who went to jail back in the 1980s for securities fraud. President Obama’s deficit commission also embraced a higher retirement age in its final report late last year. The commission’s logic: Higher retirement ages are just and fair because we’re all living longer and will need to work longer as a result.
I’ll leave aside the obvious irony of someone like Michael Milken worrying about Social Security — it’s just too easy a target. Instead, let me tell you what worries me about the arguments being made for a higher retirement age.
First, the longevity argument tends to mask the fact that a higher retirement age results in a substantial across-the-board benefit cut — no matter when you retire.
For illustration, consider the Social Security reforms enacted in 1983. That package implements over many years changes that ultimately cut benefits about 19 percent. The biggest change, by far, is an increase in the age when full benefits are available, from 65 to 67 in 2022. At that point, benefits claimed at ages 65 or 66 will be about 13 percent lower than they would had the retirement age not been boosted.
Here’s an example of what happens when the full retirement age rises. If you were born between 1943 and 1954, your full retirement age is 66. “If you decided to take benefits early at 65, you would no longer get a full benefit, but a fraction of a full benefit,” explains Virginia Reno, vice president for income security at the National Academy of Social Insurance (NASI). “On the other hand, by waiting until 66, you used to get more than a full benefit when the full retirement age was 65–now you don’t.”
The Obama commission calls for increasing Social Security’s full and early retirement ages, “based on increases in life expectancy.” The changes would effectively reset full retirement age to 68 by 2050 and 69 by 2075; the early retirement age would rise to 63 and 64 in those same years.
That approach may sound reasonable and gradual, but it’s not if you’re age 29 or younger. You’ll bear the brunt not only of the 1983 cuts, but yet another round of reductions on the order of 20 percent.
What about the rising longevity argument? If we’re all living longer, shouldn’t we be required to work longer, too?
It’s key to understand that longevity gains aren’t spread evenly across the population, due to differences in healthcare, lifestyle and other factors. For example, in the past three decades, men in the top half of income distribution enjoyed a six-year gain in life expectancy from age 65, while lower-paid men had a 1.3-year gain, according to NASI.
Paul Krugman, the Nobel Prize-winning economist, sums up the longevity gain argument this way: “(It basically says) that janitors should be forced to work longer because these days corporate lawyers live to a ripe old age.”
Finally, finding gainful employment is extremely difficult for workers in their 50s and older. The national report on unemployment in April showed that the average length of job searches for workers over age 55 remain at record high levels, and were much longer than those for younger workers. For example, workers between the ages of 55 and 64 searched for 43.9 weeks, just under a year.
Social Security does have a long-term problem, in that its huge surplus will be depleted around 2035, absent any other changes. But the program isn’t a cause of the deficit, and even in 2035, Social Security would be able to fund 78 percent of promised benefits from current revenue.
Social Security benefits already are modest — average annual benefits are a bit under $15,000 per year. And, they’re getting smaller no matter what we do now.
So let’s not slash the future benefits of today’s younger workers. A better way to get the program back into long-term balance is to lift the cap on payroll subject to Social Security taxes, currently set at $106,800. That, plus a handful of other modest changes, can keep Social Security strong over the long haul.