Boosting Social Security age is a benefit cut for everyone
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President Obama didn’t lay out a specific Social Security reform plan in his speech on the deficit on Wednesday. But he did say he wants to strengthen the program for future generations without “putting at risk current retirees” or “slashing benefits for future generations.”
“Strengthening” could well include a higher retirement age, as recommended last December by the President’s own National Commission on Fiscal Responsibility and Reform.
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. This argument ignores the fact that longevity gains are concentrated among more affluent Americans, and that finding gainful employment is extremely difficult for workers in their 50s and older.
But even if you do work longer, it is important to understand that higher retirement ages would result 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 (see chart
).
Here’s an example. The full retirement age for a 66-year-old worker who files for benefits this year is 66. “People that age who decided to take benefits at 65 would no longer get a full benefit, but a fraction of a full benefit,” says Virginia Reno, vice president for income security at the National Academy of Social Insurance (NASI). “By waiting until 66, they would have gotten more than a full benefit when the full retirement age was 65 — now they 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 they aren’t 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.
I’m not sure that meets the approach to Social Security the President has been articulating since he was a candidate in 2008, and reiterated today:
. . .both parties should work together now to strengthen Social Security for future generations. But we must do it without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; and without subjecting Americans’ guaranteed retirement income to the whims of the stock market.
What about the rising longevity argument? If we’re all living longer, shouldn’t we be required to work longer, too?
First, the gains aren’t spread evenly across the population, due to gaps in healthcare, lifestyle and other factors. 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.
Commenting on the Obama fiscal commission, New York Times columnist Paul Krugman puts it this way:
. . . the proposal seemingly ignores a crucial point: while average life expectancy is indeed rising, it’s doing so mainly for high earners, precisely the people who need Social Security least. Life expectancy in the bottom half of the income distribution has barely inched up over the past three decades. So the Bowles-Simpson proposal is basically saying that janitors should be forced to work longer because these days corporate lawyers live to a ripe old age.
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 76 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 young people. 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.
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A refreshing reality check on what “entitlement reform” is really all about. MSM repeats the Petersen Institute and Bowles-Simpson half-truths over and over.
The real problem here is the federal government want to renege on the promise to repay money in the social security trust fund.
The want to use it for wars and military, plus tax cuts for the rich.
It is all very complicated, and there are many shortcomings. What about other changes for the “non”-affluent that have occurred over the “past three decades?” Is everything else equal? Were other non social security benefits provided or not in this society the same then? Better? Worse?
I don’t have answers; just pointing out the many variables not included in this thicket.
There is a fundamental conflict of premise at play, here, that invalidates the conclusions drawn.
The author argues, effectively, that an increase in qualifying retirement age, with regard to Social Security benefits, is a regressive imposition; that is, that those with lower incomes experience a greater relative decrease in Social Security benefits, based upon relative life expectancy increases, as the various qualifying retirement ages increase.
What the author fails to account for is that the ratio of contribution-to-benefit in Social Security is progressive; that is, as your contribution to Social Security, based on your income, increases, your resulting benefit at retirement increases at a considerably lower rate. Simply: the more you make, the less you get, as a ratio.
Now, the author might argue that contribution is capped at a certain level of income, therefore the wealthy don’t actually have lower contribution-to-benefit ratios. This would be a classic canard. The truth is that the point at which longevity begins to increase significantly is at an income level well below the income that results in the Social Security contribution cap. In other words, most people who live longer due to their incomes earn incomes well below the Social Security contribution cap, which, as I said, makes the contribution-to-benefit ratio progressive for the vast majority of Americans. If you haven’t been following, that means you’re penalized for earning more (until a certain point, which only affects a tiny fraction of Americans).
The math is interesting, but involved, and the author clearly cares not for it, so I’ll keep this simple: the author wants to eat his cake and have it to. He wants wealthier people (by which I mean middle-class people) to pay more into Social Security and receive less (relative to input), but the possibility that wealthier people could benefit, in Social Security benefits, from the improved health that increased wealth tends to bring is anathema to him.
The author’s measure is taken: he wants, in all things and in all ways, the wealthier (middle-class and above) to be penalized, and dearly, for having the temerity to earn more than others. In a society that loves liberty, such sentiments are detestable.
I realize, upon another reading of my previous comment, that “lower” in the first sentence of the fourth paragraph should have been “higher”. I suspect discerning readers will understanding the intended meaning.
*sigh* Furthermore, I misspelled “too” in the second-to-last paragraph. My proof-reading kung fu is weak.
This might be okay for white-collar workers, but are laborers really supposed to delay retirement until they are 70? And are employers supposed to keep those workers in labor jobs at that age? This is insanity.
Does everyone know that the increase in social security which was made in 1983 currently totals over 4 trillion? It was the largest increase since social security was created. So that the trust fund that the Social Security Administration is sitting on is fictional. Is the SSA can raise our taxes every time they run out of money then there is no real trust fund. Its all just taxes. BTW, they started using the trust fund last year. Since the dollars aren’t really there they helped increase the deficit which Harry Reid said they had not done. They will do this until the trust fund account they don’t have runs out. All the while causing an impact to the deficit and the debt.
It really doesn’t matter if people can work till their 70 or whether anyone things they deserves 100% of some promise which should have been made. The government is broke and soon no ones going to get paid, including social security recipients.