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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 4:28PM
The solution is to raise the retirement age but exempt anyone 40 or older and they still apply to the old rules.

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%.

Nov 14, 2012 4:15PM
I wasn't around then, but did people retire 100 years ago? Who told us us that not only we could stop working, but someone else would pay for it. Shame on them for saying it. Shame on us for believing it.
Nov 14, 2012 4:13PM
I will be 49 in a couple of weeks (divorced)  and have worked all my life.  I have a good job that I should be able to work in later years but  I would love to retire at 65 and just to enjoy life with out any commitments before I died.   I just am not sure that it will happen.  I have a 401K that  my company contributes some to as well as I do myself but I just don't see being able to make ends meet when that time comes.  Things are so expensive nowadays and I do not see that changing and I am a very frugal person.  I find this all very scary.
Nov 14, 2012 4:12PM
despite the discussion, retirement is a personal decision based on how productive you want to be as  you age.  if you want your biggest decision of the day to be 'do i shower first then have coffee?' or 'do i have coffee and then shower?' then i guess you are not only ready to retire but become a veggie:)  me?  66 and plan to keep on workin'. 
Nov 14, 2012 4:09PM
If they change health care to single payer, for everyone it will fix the medicare problem! The SS payments could be doubled;  this would stimulate the economy and bring in more tax, revenue! With the Baby Boomers retiring; it will insure, that business will be supported! Then, they could tax the second half of their SS at  A minimum rate , or a flat tax of ten percent! The ten % could be used to pay for future retirees!  "There problem solved!" 
Nov 14, 2012 4:06PM
You think its unfair , how about giving the thought of Congressional members retirinf after a coupla terms with exorbitant sums coming in !  O, that piss-s you off, well tuff, these sorry politicians do as they please, get used to it! Oh hel, I forgot the best medical policy your money can buy!   HaHaHa, you SUCKERS!
Nov 14, 2012 3:59PM
If you paid an education in order to hold a job that involves little/no labor, and take care of yourself, you should not be punished with a higher retirement age that someone who did not take these steps.
Nov 14, 2012 3:56PM
Shared Sacrifice - I agree, how in hell can pols decide on our pension and health coverage when they are covered in plans and pensions that will not be adjusted.  Will politicians if required adjust their pensions and health plans in like to what happens to the rest of us.
Nov 14, 2012 3:52PM

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.


Nov 14, 2012 3:47PM

 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)

Nov 14, 2012 3:46PM
The retirement age needs to be lowered to 55 years and that way it opens up jobs and gives people a chance to enjoy a bit of life before the pass. You pay into the SS system for 35 or 40 years, you should get it back when you can actually do something with it. Not when the jerk wads in Washington "think" you should have it...
Nov 14, 2012 3:45PM
Nov 14, 2012 3:43PM
We might be live longer but our "useful active retirement'' age may not be extended that much.  Eyesight, mobility, etc. will take its toll. Most of us will have to wait for full benefits.  The point is that OUR QUALITY OF LIFE WILL BE DRASTICALLY REDUCED BY HAVING TO WORK LONGER.  What good is it to retire straight to the nursing home?  AARP needs to stop selling us stuff and do some real work on our behalf.    Ray Mac, age 71.
Nov 14, 2012 3:41PM
The goverment is just hoping that you die off before you can collect.
Nov 14, 2012 3:39PM

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."


Nov 14, 2012 3:39PM
Sounds like you people all regret voting Republican now.....
Nov 14, 2012 3:29PM
The irony to this picture is that there are hundreds of thousands of 65+ workers that shouldnt work. They've made their fortunes and now sit in positions where they literally suckk their companies benefit systems dry. Take the politicos in Wash DC, how many seats in the Senate are held by 70 somethings? Time to retire and take your old fashioned views with you and let someone with a different outlook take over. The system is broken as long as we have these old fuddy duddies still calling the shots!
Nov 14, 2012 3:14PM
A person working today produces 4 times that of a person working in the 1950s. This should lead to more leisure time and earlier retirement, not later. Instead "the owners of this society" have decided to skim all of the increased productivity for themselves. In addition over the past 30 years, they've actually lowered wages, and lowered or cut completely benefits and retirement to take even more for themselves. We now have the largest gap between rich and poor in a 100 years. 
Nov 14, 2012 3:07PM

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.

Nov 14, 2012 3:05PM

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.

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