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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 12:18AM
Strangely, Congress members don't have to worry about the increased qualifying age for retirement, since they are covered by FERS instead of SS and Medicare.  So how about a national referendum where we require all Congress members under the age of 55 to forgo FERS, and receive only SS and Medicare.  The public could change the deal for Congress in exactly the same manner they are planning to do for the general public.  That way, when Congress votes to delay OUR health our retirement benefits, they would be delaying their own, as well.  Why should the Congressmen and Senators be immune from the suffering they plan to impose on the general public? 
Nov 13, 2012 10:48PM

65 is a good number for retirement for american workers . stop paying illegal immigrants social

security and disability ,food stamp, and medical benefits.

Nov 13, 2012 9:05PM
Wife worked from the age of 16 in nursing homes doing the back bracking labor/lifting and other BS for crap-o wages and benefits. Did it her whole working life until she started collecting SS @ 62. Those SS dollars and our funding of her IRA each year allowed her to finally toss in the towel before she was completely broken down. Really love it when I see some talking head on television spouting off about how everyone is so well off and healthy these days and should be working into their late 60's or 70's.
Nov 13, 2012 11:58PM

If we raise the retirement age to 70 then how are the physical labor workers like construction workers continue to work?  By the time a man that has lifted drywall or climbed ladders for 40+ years reaches 62 years old everything is usually wore out.  Most of my contemporaries have bad knees, torn rotator cuffs, compressed or blow out discs in their backs. 


This will force them to go on SSI disablity then the government will complain that the disability system is broken.   

Nov 13, 2012 11:24PM
No one should be made to work until age 70.  I don't know about anyone else, but after working all of my adult life, I am more than ready to retire at age 65.  I think if someone wants to continue working and they are able, that is fine, but if you don't wish to work until then or are unable to then your should not be made to.
Nov 13, 2012 9:18PM

Good thing government employees don't have to worry about this!  After just 30 years(retiring in their early 50's for most), they get 90% of their final year's salary!  PLUS, health care benfits, PLUS the cost of living adjustments.  They get all of this while earning more than their private sector employee equivalents. 


Keep working harder and longer privatesector people...Millions of government employees are counting on you to pay for their lifestyles!!

Nov 13, 2012 9:19PM
Instead of punishing people who actually work why don't they stop giving SS to people under the age of 62. I'm tired of the way these scumbag politicians raising the age limit of SS cause they keep giving it away. If they raise it to 70 they might as well make it 100 since most will be dead or close to death when 70 rolls around
Nov 13, 2012 8:58PM
If the retirement age is raised, employers need to be warned that age discrimination is not only illegal but unethical and immoral. Oh yes, they probably don't care.  Money is number one over moral considerations.  It should be made extremely easy to prove age discrimination if they are going to raise the age one must reach before full SS payout is reached.
Nov 14, 2012 8:05AM
I'm always amazed that one problem with raising the retirement age is never commented on.  If the older employees keep their jobs, it actually raises unemployment because THERE ARE NO JOBS FOR PEOPLE ENTERING THE WORK FORCE.  If someone retires, someone else moves into the vacated position   Even if that person already has a job, eventually a job is opened for someone without a job.
Nov 14, 2012 9:26AM
62 is old enough!  I am 31 years old and as I drive to work everyday (and have been working for 10 years) I can not belive I still have 31 years left.  Goverment employees enjoy there pensions after 30 years.  Some are completely retired in there mid 50's.  Why would the goverment think its okay for everyone else to work an extra 15 years?
Nov 13, 2012 10:47PM
This is another Tax goverment is placing upon us. They started taking out Social Security since I started working at age 16, and now I have to wait longer for my retirement to kick in, Is that fair?
Nov 14, 2012 6:10AM
Want to fix SS? Want a better run government?
Nov 14, 2012 12:52AM

It should have stayed at 55 yrs. Its your money. At that age you should have the choice to leave it in and keep working, get a lump payout or receive payments over time period!


Question: When was the first time the fund was barrowed from by the government and when was the last time the barrowed funds were paid back to the account?



Nov 13, 2012 10:15PM
I plan on sending my entire social security check to Goldman Sacks of Wall Street . They deserve it because they make their money the old fashioned way .... They earn it.  Im just some poor dumb Mechanic , me and other lower middle class parasites dont earn our paychecks only the rich earn paychecks or compensation. 
Nov 14, 2012 9:28AM

According to this article: "individuals would not be so bad off, (if retirement age is raised) because they'd have worked for an extra four years and presumably boosted their retirement incomes during that period of extra work.

This rationale totally ignores scenarios such as when someone leaves the work force to care for a spouse and does not take into account the very real issue of companies shedding older workers in favor of lower paid young ones or immigrants;ie., age discrimination.

We can't all be tenured professors....

The only real solutions:

1) Eliminate the income cap on SS wages

2) Protect low-paid low skilled workers from cheap illegal labor by enforcing the law

Nov 14, 2012 9:19AM
I'll work to 70 for my full retirement benefits the day Teachers, Policemen, Firemen,  Politicians and other public workers work to 70 for their full retirement!
Nov 14, 2012 1:47AM
Try suing the government for tampering with senior retirement funds you've entitled to. Makes no sense that we have retards in Washington DC wrecking our retirement funds although I'm not close to a retirement yet. Don't be telling me there won't be a retirement for me if I'm getting to retire. I may be old but I can still pull trigger when I'm that age. Obumbo said he can fix the economy he should start right now instead of go golfing. America is watching to see how he performs the second term.
Nov 13, 2012 7:10PM

well this is something to tell you people. we were born in the ages of 1917 to 1926 we are now called notch babys  this ment that we will not receive the full benifits of social securty . i have asked this many times to social securty. but could not get a satisfactory answer . we still get lower benifits than regular folks they have told us that they have owed us over $46,000 now but we will get none of this. so security sucks as far as we consider our problem. so you people tell us how we can get our money .

the congress gave us a simple answer we will give you $5,000 but it will be $1250/ yr.  i told these greedy people you know where togo dont you.can anyone help ? that is all  jkreis

Nov 14, 2012 10:00AM

I to have worked since the age of 16 and am tired and by body is filled with Arthritis.  I have the option of leaving at 62 and want to take that chance.  Their are many people that work and do to their jobs they are not going to live to see 70.  Not everyone sits at a desk and has a decent job.  I work in the public housing field.  When Welfare was stopped and TANF began.  Those who lived on Welfare were given SSI.  Some of those people have never known what it is to work.  I see disabiled workers in wheelchairs as greeters in some stores.  They never miss a day of work.  Most of the people on SSI I see are drug addicts and alcholoics and all they do is produce more children who end up on our system.  It is a system that needs to be fixed BUT, not on the backs of all the people that have paid into Social Security all their lives by working.


The worst thing I have seen lately is people coming from other countries and immediately getting on SSI here.  No not the Mexicans.  They want to work but it takes them years before they are even allowed to apply for it.  So they work under the table and don't pay taxes.  They would if they could.


If anyone wants to know how to get the governments attention.  Call and write your represenatives.  


My solution is simple:  Everyone who wants to become an American Citizen should be in the military for two years.  They learn english, they learn honor, they learn that they are fighting for the same rights our families have fought for.  They should be allowed to be an American.

Nov 14, 2012 11:24AM
America needs to wake up and smell the coffee, like someone committed below its time that we force Congress to follow all rules and regulations that we do.  No longer should they be able to vote themselves a raise or get retirement after one term. Lets make them change their ways or vote them all out of office and put some out of work people into their spot.
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