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