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Downside of a higher retirement age

Life spans have increased, but some say raising the Social Security retirement age is not fair for all seniors.

By MSN Money Partner Nov 13, 2012 6:04PM

This post comes from Philip Moeller at partner site U.S. News & World Report.


U.S. News & World Report logoNow that the post-election entitlements fights are back in the spotlight, raising the Social Security retirement age will return to center stage as one of the common prescriptions for closing the program's long-term funding gap.


Image: Social Security Card (© Scott Speakes/Corbis)Increasing or entirely lifting the ceiling on taxable wages -- set at $113,700 in 2013 -- is another frequently mentioned proposal. Further down on the list are measures to change the annual cost-of-living adjustment for Social Security recipients and restrict payments to high-income beneficiaries, as well as a slew of benefit tweaks that could have a meaningful cumulative impact on program finances.


Unlike the government's other big safety net programs -- Medicare and Medicaid -- Social Security is not facing imminent funding problems. With no changes at all, the program projects that it will pay all benefits for more than 20 years and would then be able to continue paying out roughly three-quarters of benefits.


Another misconception about Social Security is that it is floating in red ink. Actually, the program had a surplus of about $2.7 trillion in 2012. This cushion will grow further before being sapped by rising benefit payments triggered by millions of retiring baby boomers.


At first glance, raising the retirement age seems like a straightforward change that simply recognizes the demographic realities of aging. People are living longer than ever and are physically able to continue working into their 60s and even 70s. The economy will need more older workers because retiring boomers are being followed by a much smaller generation of workers.


Lastly, people will need to keep working more years for financial reasons -- to recover from the recession and to fund retirements that will last a long time.


Social Security is one of the ways they will boost retirement earnings, of course. Most people earn more money later in their working lives than when they were younger. So adding several years to people's Social Security earnings history is likely to boost their Social Security benefits when they do retire.


So what's not to like? According to a phalanx of liberal seniors groups -- foundations, think tanks, women's groups and other Social Security "preservationists" -- the longevity rationale for raising the retirement age doesn't apply to lower-income and less-educated men and, especially, women. They would get hammered by raising the retirement age. And they are precisely the group of Americans -- and a pretty big group at that -- that depends desperately on Social Security benefits for the bulk of their retirement incomes.

Here's the preservationist logic against raising the retirement age:


1. Social Security benefits are pegged so that a person reaching what the agency calls its "full retirement age" (FRA) is entitled to his or her full benefit. People retiring at the earliest age, which is now 62, get about 75% as much money each month from Social Security as if they had waited until their FRA -- 66 for those now approaching retirement.


It's also possible to defer taking Social Security until age 70, when the monthly benefit would be about 132% of what it is at age 66. This benefit structure was designed to be dollar-neutral to Social Security. Looking at longevity data and past decisions of beneficiaries, the agency figured that it will pay out the same amount of money regardless of when people elect to begin receiving benefits.


Raising the retirement age from 66 to 70 means that the time gap between early retirement at 62 and full retirement would be increased from four to eight years. This assumes it would still be possible to take early retirement at age 62. If the agency keeps its benefit structure in place, it no longer could afford to pay people 75% of their FRA benefit if they elected to begin receiving the benefit at age 62. Instead, that "value neutral" payment at age 62 would fall to about 57% of the full benefit.


2. In theory, longevity gains mean that if the FRA was raised to 70, early retirement might begin at age 66 and not 62. Raising the retirement age would thus shift everyone by four years. The system would save money by having to pay benefits for four fewer years. But individuals would not be so bad off, because they'd have worked for an extra four years and presumably boosted their retirement incomes during that period of extra work.


But while such longer lives are truly wonderful, they unfortunately are not being enjoyed by lower-income, less-educated people who work in physically taxing jobs. They're not living longer.

Wealthier and better-educated people, on balance, follow healthier lifestyles, seek out medical care and follow their doctors' advice in taking medications and related therapies for health problems.


3. Lower-income people often are not able to extend their working lives another four years. Many work in physically demanding jobs, and their bodies have worn out by the time they enter their 60s. People who retire at age 62 today tend to work in these low-income, physically demanding jobs. For them, early retirement is not a luxury but a forced necessity.


4. Raising the retirement age will thus sharply cut benefits of people who are still forced to seek early retirement. And these folks often have little set aside in the way of a retirement nest egg. Social Security benefits thus represent a very large percentage of their retirement incomes. Cutting those benefits, preservationists argue, is thus punitive as well as heartless.


More on U.S. News & World Report and MSN Money:

Nov 14, 2012 6:06PM
Half the problem with the SS is that there are a heck of alot of people getting it that should not.I for one know alot of people that get SSD that are as healthy as I am but don't want to work.The system is made more for those that abuse it than those that deserve it.The same goes for the military disability.I'm not saying all of the military that get disability because alot of then do deserve it.I was a VA nurse for over twenty yrs and am a VN veteran and have seen it numerous times.Some people know how to play the system.No polititian could touch it because there are to many veteran groups that would destroy any career you planned on.
Nov 14, 2012 5:57PM

the best fix for social security is actually lower the tax rate and remove the cap. lower the rate to 10.4% and remove the cap and you bring in much more money and lower taxes for anyone making under around 120k a year

the math works perfectly

Nov 14, 2012 5:57PM
So when are we going to start 'offing' each other?
Nov 14, 2012 5:31PM

Raise (or eliminate) the cutoff cealing ... problem solved!

Raising the retirement age will probably do more harm than good.  To many will find themselves unable to work until a higher age, and will go out on dissability, and way to many will opt for early retirement.


Im 71 years old, would you like a long desertation  on what life in your 70s feels like? 

Nov 14, 2012 5:29PM

"But while such longer lives are truly wonderful, they unfortunately are not being enjoyed by lower-income, less-educated people who work in physically taxing jobs. They're not living longer."


That makes no sense. Why is every health professional telling us to exercise, exercise, exercise? The next paragraph goes on to say that wealthier people adopt healthier lifestyles. Why does the question of when to allow people to retire have to be built aroun people with healthier lifestyles? Using that logic, drug addicts should be allowed to retire at age 30.

Nov 14, 2012 5:27PM

I have a friend that never worked a day in her life, her husband is still alive, and she collects off HIS ss. Then another friend that got married late in life, and works for cash @ a bar, collects his ss, and another 500 for his son in high school. Also all the "disabled" like the woman I know that collects because she is fat and was able to get a letter from her Dr, which ultimetly gave her free medical to have an operation forher obesity, but no one informed ss, and they keep paying.

C'mon - clean up all the abuses, and maybe people like me that worked and paid in since we were 16 will be able to collect before we die.

And please....hire someone at the ss offices that can actually answer your questions correctly. Most don't know their head from their @ss....

Nov 14, 2012 5:26PM
I'm so disgusted with these numb-nut politicians I could just scream.

Why don't they just give us a cyanide pill at age 60 so we can just end it all and no longer have to put up with all the B.S.?
Nov 14, 2012 5:20PM

As I recall, age 65 came into being as a retirement age, because the Kaiser in Germany was underpressure to provide some sort of social security program, and they picked that age 65 because most people wouldn't be around long enough to collect much.

The American 20th century of prosperity was a blip, an anomaly made possible by a unique convergence of factors, many of which are not present anymore, and we have just been coasting on inertia from that time forward.


Things are going to revert back to extended families taking care of their old parents.

Nov 14, 2012 5:19PM

The retirement age for my generation has already been raised once.  If they raise it any more, it will be almost humanly impossible for someone to live long enough in order to receive retirement benefits.

Nov 14, 2012 5:19PM
About time someone is saying something. I work as a tradesman and am getting my 5th repair done. Both knees and shoulder now. 401k wiped out twice in last 10 years to pay for recession and move to work elsewhere. I will probably not be physically able to work till 70 years old nor can i resave the last 20 years. Still have never collected unemployment and contribute to soc security. I am going to need it and i have paid for it.
Nov 14, 2012 5:17PM
67-1/2 would be a reasonable age and 63 for early retirement. They should have forced retirement for the obstructionist right wing nuts in congress. 66 for medicare.
Nov 14, 2012 5:17PM
Stop paying social security and all other benefits to non-citizens and start drug testing the recipients' see how many are really honest and clean.
Nov 14, 2012 5:16PM
Nov 14, 2012 5:15PM

No one can wait until age 70 for SSI Benefits. They've already pushed me out age 66 for full benefits.  One starts to fall apart after turning 60.  Knee Replacements, Hip Replacements, Colitis, 

And I've been Healthy all my life until turning 60.  They need to make Medicare available at 62 and full SSI at 63 !!  And if your still up to working after that .... my hats off to you !!!  They need to make an "ENERGY PILL" for the rest of us !!!  I'm sleeping more than I ever use to now.

Nov 14, 2012 5:13PM

Has it not occured to people that perhaps it is not going to be economically feasible to "retire" in the near future. China, Brazil, India etc are taking a larger share of the pie so there will be less for the US.


The living standard of the West is going to be much more like that of poorer countries in the future as things average out.


Neither Congress nor the American people have chosen to recognize this reality, but then I never credited either with a well-grounded sense of reality.


My retirement plan is living life NOW, working until I can't, and then French kissing a 12-gauge in 20 or 30 years when it is just not worth it anymore.

Nov 14, 2012 4:51PM
If they took all the crooks off disability who were roofing people's houses under the table and laying around in the sun all day and fixing cars to supplement their "disability", they would have plenty left for retirement.  The Social Security System was never design to pay for widows and orphans, especially to pay for the college education of children who fathers died and the father never paid a nickel into the system.  With drugs and gangs and millions of fatherless children in this world, the government has let the widows and orphans suck the Social Security system dry.  Social security is supposed to be a retirement system not a fund for malingerers and children with no father.  Why should the government pay for college for a kid whose father has died when the kid next door who has a father has to take out student loans?  This government is plain crazy.  If we used the system for what is was designed for, it would never go broke.
Nov 14, 2012 4:47PM

The problem is SS was designed from the start so very few would collect benefits.  Few people lived much beyond 65 at that time and those that did hard labor didn't even make it to retirement.  In keeping with the original intent the retirement age SHOULD be raised.

SS was NEVER meant to be a retirement program in the first place, just a safety net so seniors wouldn't starve in the streets.  You were supposed to save for retirement if you wanted a comfortable old age.

Nov 14, 2012 4:45PM
I as well as everyone in my generation (60's) and my children's generations (20's and 30's) were told from grade school to high school that an education is required for a better standard of living.  Since my high school graduation my family has spent thousands of dollars on education.  No matter what their circumstance, an education is important and sacrificing for one should be a top priority.
Nov 14, 2012 4:44PM
I retired 2 years ago when my boss said, "You're gone". I'll think about going back to work, but I need someone to explain to me who exactly came up with the figures of giving up 1/3 of my life to make someone else rich. And then I'll need someone else to explain to me how technology is NOT replacing people in the workforce. At what point are we "Enlightened" enough to understand that we are living in a false pretense of economic slavery, instead of the old ball and chain shackles.
Nov 14, 2012 4:38PM

Do I live that long to collect?...

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