Editor’s Note: For an alternative viewpoint, please see: Point: Raising Everyone’s Retirement Age Undercuts a Key Goal of Social Security
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.
Social Security’s main program — Old-Age and Survivors Insurance — ran a $39 billion deficit last year. That’s projected to more than double before the end of the decade. Unless Congress acts to improve the program’s solvency, the Trust Fund will be completely depleted by 2035. At that point, benefits will either be delayed or reduced by 23 percent across the board.
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 Instead, lawmakers should modernize the outdated program.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.
