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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 3:02PM
I think we should be grandfathered in to retire at the retirement age when we entered the work force. IE if retirement  age was 62 when you started working and contributing, you retire at 62. If you entered work force at 65, then you retire at 65 etc.....sounds good to me.
Nov 14, 2012 2:59PM
It's not fair, especially for those who work hard labor jobs and their bodies wear down quicker than someone who sits behind a desk all day.
Nov 14, 2012 2:57PM
Just one bit of information for the author, not everyone who works hard at a physically demanding job is "uneducated", you elitist pos! Perhaps next time your lights go off you should call a journalist, or a lawyer when your basement is flooded. Society needs these people, frankly a lot more than we need journalists, and working until age 70 or more just isn't practical for them. Your characterization of them as low wage, uneducated peons is in extremely poor taste!
Nov 14, 2012 2:42PM

Social Security was never designed to be a panacea for every Tom, Dick or Harry to live off of regardless of age.  It was designed to get older individuals OUT of the workforce during the depression while still providing them with an income.


When it was first introduced, the "full" retirement age was 65, however the average life expectancy at the time was only 60.  Since then the full retirement age has increased to only 67 while life expectancies are over 80!  Add in the fact that kids can receive benefits if the parent dies while others can use it for disabilities.  Gee, I wonder why there isn't enough money.


The minimum and full retirement ages should be raised by one year for every 20 years (or one generation) since 1960 so anyone born today should have to wait until 69 or 70 for full benefits.  They should also eliminate the cap on income subject to SS and Medicare dedutions.

Nov 14, 2012 2:26PM

I dont think they want us to collect the benefits that so many of us have paid into.

Nov 14, 2012 2:08PM
One thing not noted (that I can find) is that in 1930's when Social Security was first started, very few people lived to 65 years of age. Most of the people who first paid in didn't live long enough to collect anything. As much as it hurts, we need to try to keep Social Security going and raise the age of benefits.
On the other hand, Washington has already spent SS money for a few generations ahead. We need to reign back Washington.
I'm not so sure everyone is living so much longer. When I look at the obituaries in the paper most of them died younger than I am, many in their early and mid sixties. I'd like to see the actual statistics on longevity of people working after 65. If they work after 65 in a manual labor or high stress job, I don't think they survive for long.
Nov 14, 2012 2:01PM
My question is where are these people going to work? After being laid off at 60, it took 13 months to find another job. Since there are a limited number of jobs, most are created when a worker retires. Also the experienced older worker costs more so a company can save money by replacing them with a younger worker. It may not be legal but it is done. I can't image trying to find another job if I got laid off at 66.
Nov 14, 2012 1:51PM
How could it be unfair to be forced to work longer to pay up for those who NEVER paid AT ALL?

After all, a black president bent on righting the wrongs of the past wouldn't even consider ENSLAVING others to work in servitude for those who completely failed at life in order to bring his GRAND PLAN to fruition, ......RIGHT?
Nov 14, 2012 1:45PM

Thank you MSN for yet another fluff article full of factual errors and asuumptions devoid of any citations to objective sources. 


Take, for example, the biggest error.  Social Security does not have a surplus for one simple reason.  It is so simple even a liberal who devoutly believes that simple economics will not apply if only you do not believe in them should be able to understand it.  The Federal government takes the money designated for social security and borrows it from the social security fund to pay for other budgeted expenditures of the Federal government.  The money paid into social security is, in essence, converted into an IOU. 


Also, the "logic" used at the end is anything but logical.  First, using an emotional plea for compassion (whether justified as being morally correct or not) is, by definition, not logic.  Second, what is your source for the bald assertion that lower income people are physically worn out by the current retirement age?  Are you assuming that all lower income people are doing back-breaking labor?  Does that mean that a clerk at a gas station who lifts nothing heavier than a grocery item will be broken after years of such work?  How about someone working at McDonald's?  Do you believe that McDonald's employees heft 80 pound jackhammers all day in the process of making burgers and fries? 


A more rational approach would be to increase the retirement age by age groups while lowering the payout to match.  For example, if you are 55 and older, the retirement age and payout remains the same.  If you are 40 - 54, your retirement age is increased by 3 years and benefits are reduced by %20.  I am just picking numbers out of the air, but I think you get the point. 

Nov 14, 2012 1:44PM
If the Retirement age is raised, I beieve you will see many more people drawing off of Disability.
This in turn will wipe out most of the savings to the Social Security system.
Best leave it as it is and  raise the ceiling on taxable wages.
It's idiotic to think people can work to 70. People in the trades, manual labor, or blue collar are lucky if they can make it to 65. My husband is 69 and exhausted. He did retired fat 65 and it was too early so he returned to work at what was supposed to be part time, now it's a 40 hour week with 10 hours commuting each week. He is a hard worked and wants to work, but he really should have quit a year ago. I think if these guys want to be realistic, maybe they could raise the retirement age to 68 if it isn't manual labor, but 70 is ridiculous. People's life span may be longer, but that doesn't mean there's enough quality of life to work forever.
Nov 14, 2012 1:30PM

Retirement age should be lowered not raised, If people retire earlier, companies need to find people for replacement. more jobs for young folks, instead they sit all day watching TV and collecting unemployment checks. While a 60 year old is working harder so that he can keep his job so that young competition does not take it from him.

Do you know any company that would hire a 60 year old person ?

Nov 14, 2012 1:25PM
The harsh reality is that most of us now confuse our needs with what modern technology has made available.  We ask our government to manage money in and money out with our own personal interests in mind and most of us don't do such a great job making those same decisions in our own home.  If all of us worked hard to get an education, earn a living, save some money, only had children when we were financially and emotionally stable, and purchased only what we can afford, rather than what we want, our households and our country would be in a better position.  We now face a fiscal cliff, tax hikes, and entitlement cuts because of gross mismanagement by our politicians and ourselves.
Nov 14, 2012 1:23PM

But don't worry the government get their pensions.


If I don't get it why should my tax dollars pay for them to have one?


If the maggot politicians keep their hands off this money then we can keep the retirement age as is. But noooooooooooooo, they just can't keep out of the cookie jar.


Shared Sacrifice has a great idea but it would be a struggle because the maggot politicians would fight that like crazy. Try it and you'll see what happens when you get in their pocket.

Nov 14, 2012 1:20PM

IF they wish to raise the SS age then do so for those 45 and younger and keep the promises THAT WE PAID INTO AND GIVE US OUR MONEY. WE PAID FOR IT AND WE EARNED IT!


Nov 14, 2012 12:58PM
Democrats made all the changes to social security so far, guess who we just put back in. You reap what you sow.
Nov 14, 2012 12:57PM

Hmm. Not fair for seniors? Here's a thought. How about not fair for those paying into it now? Working longer isn't very pleasant if you don't like your job or it's difficult. What's more, a lot of businesses just love to phase out "grandpa" and hire someone younger and possibly more productive for less. They really love it!


I enjoy my job and will work as long as I can, but for those that don't or can't this is a very poor solution. This isn't a free entitlement, we have earned it. The government needs to treat this like a household budget; take in more than you spend. Not by cutting benefits, not by punishing the 40 or 50 somethings who have been paying into this for 20-30 years, and not by raising taxes, but by finding ways to do things better. We have time, start thinking outside the box. How about investing some of that money so it generates interest for starters? 


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