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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:

Jan 11, 2013 7:17PM

Alot of the poor and uneducated have been living off the government since they were 21!! or had there 1st kids.   Many of these people have been "retired" there whole lives.

    Also no more SS or any kind of welfare for ILLEGALS!!  Get legal and come to this country as a law biding citizen and if you qualify and "need" help americans are glad to give it.    But being encouraged to come to the US illegally just so you can vote socalist democrat  NO MORE!!!


HGW347 (below) makes good points and does accurately state the history of Social Security.  Though the scenario could be described as a PONZI SCHEME (his words), it may be more accurate to acknowledge that it was cowardice and/or ineptness by the nation's leadership!  Politicians have merely ignored the building dilemma (which has been apparent for many, many years) and kicked the proverbial SS "can" (challenges) down the road - rather than act in a responsible manner to resolve the dilemma (the same is true for education, healthcare, illegal immigration, job security, wasteful spending, artificially low savings interest rates, etc.). Folks, we elected these fools, and we are reaping what we sowed. Sad! 


If we have any hope for a resolution, we had better learn to vote for resolutions - and not necessarily for a particular party.



Jan 11, 2013 1:35PM
Why is it ok for public employees to retire at 50 to 55 and receive their full pay, but everyone else that pays for their retirement through the SS taxes they pay should work till 66 or if this article was followed 70. Shouldn't the federal and state workers have to work longer by at least the same amount of years? I'm sure it would help the budget deficit by billions of dollars! What's strange is that no one ever talks about reducing the pay or increasing the years required to work of government employees. Why is that?
Jan 11, 2013 8:33AM

SS was never implemented with all the handouts it now has in the forms of SSDI among others.  SSDI requirements were significantly loosened and have made it much easier for anyone to collect.  There was a 60 minutes episode years ago where they interviewed a number of retired people and basically told them that their SS was paid back to them with interest in approximately (drumroll please)... 3 years.  Some felt we should still pay them for as long as they live.  SS needs to take more from our checks if everyone wants to profit from the system for the rest of their lives.  This was a government handout to people and always will be.  The government just thought they would be able to get away with it because there were so many workers to pay for it way back when.  16:1 then and 3:1 now.  This program will never be reformed because people like government handouts at the expense of everyone else.  Whether Democrat or Republican the American public is not willing to make the hard decisions to cut entitlement programs that people think they deserve by virtue of just being alive in this country. 


Some facts from :


- In 1935, there were many more people paying into the system than those receiving benefits. The ratio of workers to retirees meant that workers did not have to pay much into the system in 1935 to support the retirees ( shows that up through 1950, only 2% of income (1% employee, 1% employer) was withheld for Social Security, compared to 15.30% (7.65% employee, 7.65% employer) today). In the future, the retirement of millions of baby boomers will hurt the ratio -- there will be so many retired people that the working people will not be able to support them. If the population had grown steadily this would not have been a problem, but there is no good way for the design of the Social Security System to handle a population spike like the baby boomers.
- Many people have become so used to the idea of a (where your money belongs to you and grows to a large sum over time through investment compounding), that the idea behind the Social Security system becomes hard to swallow. Currently a worker pays 7.65% of his or her gross income into the Social Security system (with a cap at a gross income of around $70,000), and the employer pays another 7.65% for the worker as well. If you could take that 15.30% of gross income and invest it in a 401(k) plan for the same period of time, it would generate an immense sum of money based on historical returns -- far more than a person with average income (or greater) would get from Social Security. A retiree's Social Security benefit is calculated using a complex formula rather than an account balance, because there is no "account" in the traditional sense.


*Sigh...government at its finest...the perfect Ponzi scheme.


The citizens are going to have to kick the current politicians out of office and bring in a newly elected Senate and House.  These career politicians have no idea how the rest of us have to live.  Folks, we need:

(1) term limits on the Congress and

(2) to ELECT AVERAGE CITIZENS (not career politicians) to represent all Americans, and

(3) government politicians and employees need to be limited to the same benefits as the rest of the citizens under Social Security and Medicare. 


Regarding the appropriate age for full retirement, politicians don't understand:

(1) some jobs are more physically demanding and people just cannot work them until they are 70, and

(2) despite the laws on the books, many Americans are still pressed out of their careers in their early 60s; therefore, if the Social Security retirement age goes up, then corporations need to be "mandated" to not force out (by hook or crook) elder workers before they reach full retirement age. Don't raise retirement age without ensuring jobs are maintained by the aging workers!


Lastly, jobs are at a premium in today's America; that is, unemployment remains high!  There are many reasons, and one reason rests with illegal immigration.  The media says illegals take jobs Americans don't want. That's a lie!  Employers should be forced under penalty of felony and jail time to verify employees are legally available to work in the USA.  This approach will open more jobs for those that are here legally, thus, approved to work in the USA.  It will also insure that fair wages are paid to legal US workers instead of unfairly low wages that employers prefer to pay illegals (in order to add to the employer's profits).

Nov 24, 2012 10:30PM
Why not get rid of the cap on Social Security taxes?  If you are make 100,000's of dollars, I don't think the additional tax will hurt you.  For people that complain that small business can't afford it, then stop the match after the current cap is reached and let the person earning the money continue to pay the tax while the company stops paying.  This will only affect a small number of people, but these people are usually the ones that keep working past 62.  

By the way, I work for a PERA company; therefore, I am not eligible to collect social security since I will be past the windfall exemption.  I worked for 16 years and paid into social security and I continue to have a part-time job that I pay into Social Security.  I will never see this money again.
Nov 24, 2012 10:02PM
I swear they just think that more are living longer.. heredity has much to do with how long you live. My Family was large, I had 4 brothers and 3 sisters, all are gone but 3 of us. We worked hard all our lives and those that are still living have physical problems. I doubt I will see 70 so, NO, I want to retire and at least have a few years of retirement. OMG.. wtf is wrong with these number crunchers, they have no heart.
Nov 15, 2012 2:42PM
This article -Downside of a higher retirement age-should be one sentence long.  Downside is you'll be dead or dying before you reach it.
Nov 15, 2012 1:04PM
Social Security is not an entitlement. I'm sick and tired of it being called that. Everyone who works pays into it. It would not be running out of money if Nixon hadn't put it in the general fund. If the government would keep their paws off of it and pay back what has been taken, we would be just fine.
Nov 15, 2012 12:13PM

ALUR77  really needs to grow up and get a cmd of the english language and take a course in people skills of which he is severely lacking. The older work force has knowledge he'll never have and their skills are needed to train young generations. But some people can be taught, maybe alur77 falls in that class of losers.

Nov 15, 2012 11:10AM
I see a lot of comments here that make really good points, but what disturbs me is the undercurrent of division.  I;'ve found no less than 6 lines of division in just the first half of comments: men vs. women, young vs. old, dems vs. repubs., wealthy vs, poor, public sector vs. private sector workers, and white collar collar.

What concerns me is that while we're all squabbling and blaming each other, someone is robbing us our our golden years: whether it be the banksters, corporate elite, or the government (which has really just become the puppet of the other two).

What if we all decided to strike: government and private sector alike? Where would any of these organizations be without workers? I have never worked a union job, but it seems to me that when people unite and make a stand, like they did against industrial giants like Carnegie and JP Morgan, we can take our country back.

I see a lot of turmoil going on today that is showing me how close we are to returning to late 19th century America, where workers had no rights, no SS, no security at all. It frightens me. What frightens me even more is the pulling of History and Social Studies in classrooms across the country and outsourcing the University courses in History to poorly paid part-time faculty. If we don't learn from what happened in the past, how can we protect ourselves from repeating it? Be afraid, be very afraid when dollars are pulled from pubic education and schools are funded by some reincarnation of Rockefeller or Carnegie.  Who's best interest do you think a guy like that is going to have in mind? Your kids'? The country's? No, their own.

Nov 15, 2012 10:26AM
the3  poiticians  are  always  way  behind  the  curve. as  the  life   expectancy  age has   gone  up  the  retirement age  at  which  to  draw   welfare   should  have   gone  up.  if  this  would  have   have  happened    there  would  be  plenty  of  $  money  for   all   peoples   retirement.   the  only   "fix"  that  is  evr   done  is  taking  more  money  from  productive  people   and  giving  it  to  those  that  are  not.
Nov 15, 2012 10:25AM
stop using s.s. as a disability payment i see people on this that are good actors nothing wrong with them tacking care of horses and familys of people in jail i know one that the whole family is on it they brag that  they showed there kids how so they dont have to work they travel all over and come back just to get there checks
Nov 15, 2012 10:23AM
Smart people see 40 as the target retirement age, the way i see it is ages growing 1-18 out of high school unless they go to college for whatever reason, at 25 you work until 45 maybe 50 and retire, enjoy the next 30 to 40 years of life, busting your azz till you've got one foot in the grave, then trying to enjoy life has never made sense to me
Nov 15, 2012 10:20AM

The whole thing is just wrong and sad. The Government took the SS funds and now says that there is not enough to cover the program. I agree with most of the other people that have posted comments, why doesn't the news media make a big deal about how SS funds were taken every time a congressman or senator says that SS benefits need to be reduced because of the level of funds left in the program.

Nov 15, 2012 10:18AM
If they double the benefits of people on SS it will stimulate growth and create jobs!
If we go to a single payer health care system it will solve the medicare problem, and free up money to pay down the debt! Medicare works well, there is just not enough money to sustain it ;  single payer would be paid for! With the SS payments doubled, it would be a better hedge against recession and would fuel small business.
Nov 15, 2012 10:15AM
This has got to stop, when will we get a REAL CHANCE to enjoy what life has to offer?  The Service is one of the few places where 20 and out with full benifits, go in at 17 or 18 and retire with full benifits at 38 !!! How can you go wrong with that! But to retire at 65 is a joke, America makes mistakes all the time and this is one of them, our healthcare should be like Canada FREE!! The list of wrongs is very long.Lots of Cons,where are the Pros Pray tell ???
Nov 15, 2012 10:06AM





Nov 15, 2012 9:58AM
Let's get real. When has anything that comes out of the political circus been fair to the general population.
Nov 15, 2012 9:57AM

Until Congress has the same rules as it makes for US citizens they will get ZERO respect.

and until the robot-voters stop putting the same criminals back in office, THIS will be as good as it ever gets.

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