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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 11:24AM
America needs to wake up and smell the coffee, like someone committed below its time that we force Congress to follow all rules and regulations that we do.  No longer should they be able to vote themselves a raise or get retirement after one term. Lets make them change their ways or vote them all out of office and put some out of work people into their spot.
Nov 14, 2012 11:20AM

When SS was passed the retirement age was 65 and the average lifespan was 61.  This obviously meant that SS was intended for less than half of the people who put money into it.  Simply put they expected more people to contribute and die before retiring. Today the average lifespan is 78, so to keep the intended balance, the retirement age should be 82, not 66, not 70, but 82!  Not raising the retirement age as the average lifespan increased is one of the reasons that SS is not sustainable.


As for those in lower income brackets and the less educated?  They chose to be there and SS should still expect them to contribute and die before retiring.  SS was never meant to be a retiree's sole support and for those for whom it is, you are bad planners.

Nov 14, 2012 11:07AM
I stopped reading at "the system has a surplus". Since the surplus is IOU's from the treasury which will have to borrow more money to pay them, the surplus is an accounting trick, not reality. Anyone lacking the knowledge or honesty to at lease add that little tidbit as a qualifier is not worth reading.
Nov 14, 2012 11:06AM
The only reason the following generations are producing enough workers is that they are the entitlement people that do not want to work.  Until BIG government learns how to make these people work and get them off the entitlement programs it will continue.  Welfare, medicaid and foodstamps was not meant to be a lifestyle, it was to help people through hard times, our government has created a monster that needs to be reigned in because eventually there will be no one working, wonder what our BIG government with all its benefits will do then.  They do not have to participate in 401K, OBAMACARE or anything the normal working person does, they have lifetime pay even if they only serve one term, they have insurance we only dream about and other benefits that we do not know about I'm sure.  We have created a monster of BIG government with people like OBAMA, PELOSI and BIDEN, they are all stupid, but you continue to elect people that will continue to raise the MIDDLE CLASS taxes so they can pay for their entitlements they promised to get votes.  This country has gone to the pits.
Nov 14, 2012 10:59AM
My Dad just had a friend that passed away at 77 years old, the ones that are retiring now have paid the most into social security and received nothing now the government porkers are scared they wont get their pensions and health care  they have to figure a way to make someone work until they die to support their pork fed wages and entitlements, they should cut their own retirement and wasteful spending if they had any guts or integrity at all.
Nov 14, 2012 10:45AM

We may be living longer but the government uses that as an excuse to raise the social security eligibility age. What they fail to tell us is that every president (democrat & republican) since JFK in 1960 has diverted money from social security to pay for other government liabilities. Reagan took $800 million in one year of his presidency just to pay the interest on the national debt. By the time Clinton took his second term there was nothing left, causing him to confirm in one of his press conferences that " there really is no social security trust fund" The 2.7 million as stated in the article are just numbers on paper.

Nov 14, 2012 10:15AM
The White Collar world deciding what is best for the Blue Collar world?Sitting behind a desk for 35 years is a little different than working construction for 35 years. How many 65 year old "Trades" people do you see still working? 62 years old and 75% should not be touched.
Nov 14, 2012 10:04AM
park avenue: money, power and the American Dream
Nov 14, 2012 10:00AM

I to have worked since the age of 16 and am tired and by body is filled with Arthritis.  I have the option of leaving at 62 and want to take that chance.  Their are many people that work and do to their jobs they are not going to live to see 70.  Not everyone sits at a desk and has a decent job.  I work in the public housing field.  When Welfare was stopped and TANF began.  Those who lived on Welfare were given SSI.  Some of those people have never known what it is to work.  I see disabiled workers in wheelchairs as greeters in some stores.  They never miss a day of work.  Most of the people on SSI I see are drug addicts and alcholoics and all they do is produce more children who end up on our system.  It is a system that needs to be fixed BUT, not on the backs of all the people that have paid into Social Security all their lives by working.


The worst thing I have seen lately is people coming from other countries and immediately getting on SSI here.  No not the Mexicans.  They want to work but it takes them years before they are even allowed to apply for it.  So they work under the table and don't pay taxes.  They would if they could.


If anyone wants to know how to get the governments attention.  Call and write your represenatives.  


My solution is simple:  Everyone who wants to become an American Citizen should be in the military for two years.  They learn english, they learn honor, they learn that they are fighting for the same rights our families have fought for.  They should be allowed to be an American.

Nov 14, 2012 9:28AM

According to this article: "individuals would not be so bad off, (if retirement age is raised) because they'd have worked for an extra four years and presumably boosted their retirement incomes during that period of extra work.

This rationale totally ignores scenarios such as when someone leaves the work force to care for a spouse and does not take into account the very real issue of companies shedding older workers in favor of lower paid young ones or immigrants;ie., age discrimination.

We can't all be tenured professors....

The only real solutions:

1) Eliminate the income cap on SS wages

2) Protect low-paid low skilled workers from cheap illegal labor by enforcing the law

Nov 14, 2012 9:26AM
62 is old enough!  I am 31 years old and as I drive to work everyday (and have been working for 10 years) I can not belive I still have 31 years left.  Goverment employees enjoy there pensions after 30 years.  Some are completely retired in there mid 50's.  Why would the goverment think its okay for everyone else to work an extra 15 years?
Nov 14, 2012 9:19AM
I'll work to 70 for my full retirement benefits the day Teachers, Policemen, Firemen,  Politicians and other public workers work to 70 for their full retirement!
Nov 14, 2012 9:04AM
But couldn't there be different limits for physical and sedentary labor? Any way we look at it, though, when Otto von Bismarck invented Social Security in the late 1880s he set the age at 65, which was very old indeed.
Nov 14, 2012 8:42AM
I agree with the comments below, keep the age requirements as is!  Suggestions to contain costs (1) limit payout to amount at age 65, not 70; (2). SS for younger should be for special needs people and the most severely disabled!  (3) Immigrants-this needs review, must not be used to buy votes!
Nov 14, 2012 8:06AM
Ask the Geek people about the give away. Not working to good now.
Nov 14, 2012 8:05AM
I'm always amazed that one problem with raising the retirement age is never commented on.  If the older employees keep their jobs, it actually raises unemployment because THERE ARE NO JOBS FOR PEOPLE ENTERING THE WORK FORCE.  If someone retires, someone else moves into the vacated position   Even if that person already has a job, eventually a job is opened for someone without a job.
Nov 14, 2012 7:38AM
Go to single payer health care and double SS benefits!
Nov 14, 2012 7:36AM
I think they should raise it to 70. 70 is the new 40. 
Nov 14, 2012 6:10AM
Want to fix SS? Want a better run government?
Nov 14, 2012 1:48AM
I wonder if America will split into Five as John Tito said.
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