CON: Age hike saps dignified retirement goal
Social Security faces a big hole in its finances. The program takes in too little money to pay for its longterm 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 years when revenue was greater than payouts. As more of the baby boom generation retires, however, spending will rise faster than income, and program reserves will shrink.
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.
One way to deal with the problem is to raise the Social Security retirement age. Advocates of the idea usually argue the reform 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. 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 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.
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.
We raised the retirement age for Social Security recently, so we can learn from that experience. The 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.
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 assure workers with low lifetime wages that they will receive a decent pension even if they retire at today’s early retirement age. Since these workers have not benefited from the life-span improvements most of us have enjoyed, it would be unfair to expect them to work longer to qualify for a decent pension.