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:
And I do have to interject that if you save your own money (IRA, 401 etc) then the government has almost no say as to when you can retire or not. It's whenever you feel comfortable tapping those funds.
And finally, when they said "continue to pay out 3/4 of benefits" as if it's a good thing...that tells me the 15% they're taking from my check every month is earning me a -25% rate of return...and that is NOT a good thing. You'd seriously be better off stuffing that money under a mattress and letting inflation do it's damage as that's less than -25%.
forget about it guys, all nobumbo asks is for everyone to pay their fair share,
just a little bit more.
You don't really expect his fat cat rich golfing buddiies to take a pay cut, do you?
He'll tax the rich and they'll simply pass the tax down to us, expect continued price
increases in everything. You voted him in, now we'll all work to 70.
re: government pensions
i would propose as a first step in pension reform that all government employees who get pension benefits should be included in the social security tax rolls. this small step toward equalizing pension benefits should buy enough time for further reform.
i believe this would be a fair starting point as at least everyone would then be paying into the system regardless of your job. also, everyone who isn't paying for medicare should be included in that tax roll.
in addition, i think new government employees should autmatically be enrolled in the social security system just as private sector workers are.
and i believe that no new benefit increases or new benefits should be added without also being added to the social security program.
This would ensure that the programs automatically become the same over time
I think these rules should apply to all governmental levels(federal, state, & local alike)
All elderly people should work until they feel they can't anymore, althewhile paying into ss. When they can't work anymore they should retire and be euthanized so they don't get any of their money back. (Sarcasam)
It is time that anyone paying into ss demands that it go back to a stand alone organization that does nothing but collect, invest, and payback the moneys that are paid into it. It was never set up to be part of the US budget. The government could not stand to see all that money sit there and decided to steal it and use it. They will never pay back the 80+ billion that they owe.
Additionally you are letting the govermant steal the rest of this great nation right from under your noses. It is time to quite whining about the election and time to stand together and make your senators and representatives do what they are paid to do. If they don't it is time to re-call them. Believe it or not a recall ballot is not that hard to get going.
Tell them now, "Work together towards the good for this great nation, or get out, or we will help you get out."
This is so sad.. this is the mentality of our Government.!!!
It makes me laugh when these fat cats that sit on their buts all day make up our laws and a ridiculous one like this!!! Let them try and dig a ditch or do hard labor or even anything fiscal till they are 70 ..and see how fast the age of retirement would drop then.
Most of us have planned retirement for 65 or 66 in some cases. I knew what the plan was and have time to make some adjustments for the new rules....but if you are under 55, that should give you some time to adjust....just add one MONTH to retirement for every year you have left until the full retirement age.....example. if you are 50 years old. you have 16 years until full retirement age of 66 add 16 months on to the 66 years old ....and so one. eventually you will get the age insync with the current life expectancy.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
The Consumer Financial Protection Bureau's complaint database highlights the worst problems people have with collectors.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'