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:
"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."
The surplus was spent starting in the Reagan Administration and continuing until it was generally exhausted during our current depression. Money that was spent as part of general revenue cannot be surplus. This is just another of the many articles that stupidly causes Americans to believe that the $2.7 trillion exists somewhere so that it can be accessed to pay Social Security benefits.
I repeat, the $2.7 trillion is gone. It was spent as general revenue. There is no real Social Security Trust Fund and there most definitely is no surplus.
lower income people who do hard jobs will simply go on disability. Its not nearly as hard as it once was. They will make more on disability than they would have made on SS anyway. No one cried when the current age increase was put in action.
People should collect at 65 only if they promise to die by 72. The SS actuarial tables used to set up the system are no longer valad when the facts of longer age no longer apply.
Lets use war on women, class warfare and anything else that puts VOTERS on the public teat. It is time to put the House and senate on SS and Obamacare. We pay for their benefits. Why should these benefits be better than ours. They done even work all year. Some would say they hardly work at all. Their hardest job is 1: being taken out to dinner by influence pedderers. 2: going on paid fact finding vacations to foreign countries. 3: Playing golf with corporate ceos
100% TRUE! People who worked physically demanding jobs will never achieve the same lifespan as the Look Busy Feel Easy types. I retired because the physical demands of my job plus my Health Condition did not permit me to work any further. If I continued to work any longer it would be wishing Good Bye to my chances of seeing my grandchildren, leave alone watching them grow up. I have no idea why the government keeps ignoring the INCONVENIENT TRUTH. You might as well call Dr Kourvokian on me. That is pull the plug on me. I guess I am ranting. Call it whatever you like or do the decent thing FACE THE INCONVENIENT TRUTH!!! We are not asking for a handout. We are not BEGGARS, as the HEARTLESS REPUBLICANS would have you believe. We are demanding our rights after paying into the Social Security System all our working lives. To clarify, Social Security and Medicare are not Doles. I leave it to you Wise , Know it all guys to decide the difference between Welfare and Medicaid and the former. The former is a Solemn Promise made by the Government to the people. KEEP IT!!! We are not DOORMATS to be used but left out in the Cold.
There's another problem-what happens to people, mostly women, who find themselves at 60 with elderly parents needing care, who can't afford to hire help, or to do without some income while they care for their parents?
It is high time that families got more priority. Women are carrying huge loads because govt in this country (read men), thinks they should do it all with nothing to say about it. They work because they want to, or usually, have to, care for children and parents, with good day care difficult and expensive, and caregiver help tough to come by. The system is rigged to favor nursing homes, which is not cost efficient.
All this is less socialism than common sense.
Freedom is having choices and opportunities. We can always admire those who succeed in overcoming huge obstacles, without thinking that is the way it should be. The more opportunity is available, the greater the potential for each person to succeed. Few will overcome huge obstacles. Removing as many of those obstacles as possible allows us maximum opportunity for growth. There is no shame for anyone in succeeding with a leg up from his fellows.
I always find it amusing that the rich are the guys who keep telling us it's good for us to struggle-especially from the likes of Romney, born with a silver foot in his mouth.
There are issues with further raising retirement ages. One issue is that while many of us live longer, we also end up with chronic conditions that can make holding down a job difficult, if not impossible. SS Disability should cover this, but these days, you can't collect without getting a lawyer and a huge hassle. Many can't go there. What happens to folks who work very physical jobs? That can get very difficult by the 60's. What happens to folks in bad times like these? No one is going to hire people in their 60's when the market is flooded with younger people. How do they live until they can collect full retirement? Drain the 401K? Fine, if you have one. What we need is a bridge for older, less employable people until they can retire. With that proviso-that the sick and those suffering from long term unemployment through no fault of their own can be covered, raising the retirement age is not a bad idea. Covering the above is likely to kill any benefit, and it might even cost more.
Lifting the income cap, and the benefits cap to some degree would help. A small increase in SS premiums to help cover the bridge for the infirm and employment challenged is also called for.
Ageism is a real problem in the US. Either it has to be stopped, or provision must be made for those affected.
Why should anyone have to wait longer for retirement, since we are the ones that paid into it. Everyones health, finacial and working situation is different.
We get approximately 75% of full retirement if we take it at 62. After 62, it increases approximately 8% a year until maximum retirement. We should also be able to take an additional reduction of 8% at 61 and additional reduction of another 8% at 60, if we wanted. We may be in poor health and need the supplement earlier.
It seems that things should be getting better; not worse, if Social Security funds were managed completely as intended. People should be able to retire earlier and open up jobs to people who really need a job. In the not too distant future, unemployment should greatly reduce with the large group of baby boomers now reaching retirement age, IF we don't start rasing the retirement age...especially now.
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