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Retirement Age

One perrenial favorite way of cutting Social Security costs is fiddling with the retirement age and, in light of increasing life expectency, this has a certain logic to it. The issue, however, is oft-misunderstood due to the SSA's habit of misleadingly labeling 65 the "normal" retirement age even though the vast majority of people (72 percent right now) actually take "early" retirement at reduced benefit levels at 62. This is an extraordinarily large proportion of people and, despite improvements in health and life expectancy, it's rising which suggests, as Bruce Bartlett argues, that the early retirement benefits are overly generous and should be reduced so as to be actuarially fair. The main benefit of adjusting this would less be the reduction in benefit pay-outs than the fact that it would increase the incentive for people who are physically able to keep working until 65 (journalists and other desk-bound types) to do so, thus increasing the worker-to-retiree ratio. This makes more sense than raising the retirement age per se which would constitute a greater hardship on people in physically taxing lines of work.

On that same theme, it might make sense to simply abolish the idea of a "normal" retirement age. Under the alternative plan, people could choose to start drawing benefits at any age (over 62) with monthly benefits growing proportionally larger with each additional year of deferment in an actuarially fair manner. That would leave long-term outlays the same (the upward adjustment is actuarially fair, as you'll recall) but would eliminate disincentives for able-bodied people to keep working. The likely impact wouldn't be huge, but it would increase the size of the workforce at the margin and, therefore, increase the size of the tax base. A small change, but small changes (if anything) are what's called for, and it sounds to me like a change that makes sense on the merits irrespective of loose talk of a "crisis."

January 3, 2005 | Permalink

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A suggestion for how to deal with Social Security retirement age - reduced payments for people who retire earlier, and proportionally greater payouts for those who retire later.. [Read More]

Tracked on Jan 3, 2005 8:44:41 PM

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On that same theme, it might make sense to simply abolish the idea of a "normal" retirement age. Under the alternative plan, people could choose to start drawing benefits at any age (over 62) with monthly benefits growing proportionally larger with each additional year of deferment in an actuarially fair manner.

You could even let people voluntarily draw reduced benefits with an actuarially fair compensation in available future benefits. This might reduce total payouts, as people, particularly with outside but not perfectly secure retirement income, might defer some portion of the public benefits as a means of providing greater security if their own investments fail.

Hmm. The combination of the ideas might be sold as a "Secure Choice" plan -- it enhances personal freedom and flexibility, while providing the security of knowable benefits.

Posted by: cmdicely | Jan 3, 2005 5:29:46 PM

In my personal experience, the largest (by several orders of magnitude) "disincentive ... for able-bodied people to keep working" is age discrimination. The difference in SS benefits is trivial compared to that.

Abstractly, and looking at society as a whole rather than just the SS "crisis," I'm not sure that isn't a good thing. When I retire, two or three slots for 30-somethings with computer science degrees will open up. They need the jobs, and I don't need the extra retirement income.

Posted by: Bob Munck | Jan 3, 2005 5:35:57 PM

"The likely impact wouldn't be huge, but it would increase the size of the workforce at the margin and, therefore, increase the size of the tax base."

What would make a staggeringly large difference to the 30-some million generation xers who will be burdened with the lion's share of the nearly 80 million boomers's 72 trillion dollar+ entitlement benefits (most of which - 62 trillion - are of course medicare) would be to *dramatically* increase immigration of working age people *now*. Of course, just as the right-wing boomers in charge have launched a potentially multi-decade, multi-trillion dollar "war on terror" but don't seem inclined to want to make their generation pay for it, they also seem rather inclined to dramatically decrease the levels of immigration to this country - just when we need it most.

Posted by: Green Dem | Jan 3, 2005 5:39:13 PM

Of course, just as the right-wing boomers in charge have launched a potentially multi-decade, multi-trillion dollar "war on terror" but don't seem inclined to want to make their generation pay for it, they also seem rather inclined to dramatically decrease the levels of immigration to this country - just when we need it most.

Really? This is news to me. Got a cite pointing to the legislation intended to "dramatically decrease the levels of immigration to this country"?

The polling data supplied by these nice xenophobic folks would indicate that support for a decrease in immigration levels is marginally higher among Democrats. (which sounds logical to me, given the party's demographics): http://www.npg.org/factsheets/imm_americans_spoken.html

Indeed, it is to his credit that the Republican president is the key figure pushing forward the idea of a sensible guest worker program, which would at least offer some measure of substantive regularization and acceptance to the millions of undocumented immigrants already here.

Posted by: P.B. Almeida | Jan 3, 2005 5:55:33 PM

Pardon my French...but..

I call bullshit.

Increasing the retirement age WILL increase the workforce, but what that will do is drive up unemployment and drive down wages, actually shrinking the tax base.

Posted by: Karmakin | Jan 3, 2005 5:55:58 PM

Increasing the retirement age WILL increase the workforce, but what that will do is drive up unemployment and drive down wages, actually shrinking the tax base.

Right. Actually what we ought to do is decrease the retirement age to 40. Can't wait for the boom in employment and the skyroketing wages (not to mention the expanded tax base).

Posted by: P.B. Almeida | Jan 3, 2005 5:59:34 PM

"The polling data supplied by these nice xenophobic folks would indicate that support for a decrease in immigration levels is marginally higher among Democrats. (which sounds logical to me, given the party's demographics): http://www.npg.org/factsheets/imm_americans_spoken.html"

Actually:

"According to the study, released this month by the Pew Research Center for The People & The Press, "About eight-in-ten Republicans (82%) and somewhat fewer independents and Democrats (76% each) agree with the statement 'We should restrict and control people coming into our country to live more than we do now.'""

http://www.projectusa.org/ezine/2003/03-11-19-dems-out-of-touch.html

"Really? This is news to me. Got a cite pointing to the legislation intended to "dramatically decrease the levels of immigration to this country"?"

Bush's proposal would require immigrants demonstrate that they have a job before coming here, which combined with stricter border enforcement would have the effect of dramatically reducing the number of immigrants entering the country, legal or otherwise.

But in any event you're missing the point, which is that the only conceivable way of reducing the massive burden of taxation on generation x that is coming down in the pike in the next decade (apart from dramatically reducing medicare benefits, which isn't going to happen) is to dramatically increase immigration - and no one (least of all congressional Republicans or the Bush administration, who control the levers of power) is talking about that. The right-wing boomers are waging a generational war on generation x, selfishly, myopically, and narcissistically passing on a massive burden to those just beginning to enter middle age. It is nothing short of criminal.


Posted by: Green Dem | Jan 3, 2005 6:14:15 PM

re: Matt Y's suggestion.

I completely agree. I didn't know that so many people used the reduced benefit option. If so, it would have the effect of altering the effective age of government dependency or retirement age, or whathaveyou.

Posted by: Jason Ligon | Jan 3, 2005 6:17:34 PM

I took the early SS payment option, since it pays off to do so. But, I don't see the justification for having that option available. SS is supposed to be a safety net, not just another source of retirement funds, so it should be reserved for those who really are past the age when working full time is a viable option. My suggestion is eliminate the early retirement at age 62 option, and also eliminate the harsh tax penalty for working past age 65. That should increase the number of older workers and reduce total SS payout too.

Posted by: Vaughn Hopkins | Jan 3, 2005 6:53:49 PM

Don't forget that for anyone born in 1960 or later, the retirement age for full benefits is already 67. Maybe some of us will be able to work productively at this age. But raising the retirement age is a horror for people like bricklayers, plumbers and a host of other professions that are very physical in nature.

There are also other issues to consider. For example, my mother, who worked until age 67 because she enjoyed it, finally had to throw in the towel because of her commute. Even though she was fully capable of doing her job she no longer felt up to the 45 minute mad commute, especially in the winter, on the wild and woolly highways just outside of Boston.

The genXers should not blame the boomers, per se, but should direct their ire to those that agreed to including SS funds into the general fund. And those snickering idiots who made fun of Al Gore's lockbox.

Posted by: roger | Jan 3, 2005 6:55:34 PM

"... and also eliminate the harsh tax penalty for working past age 65."

I thought this was already done.

Posted by: roger | Jan 3, 2005 6:58:10 PM

I'm a 57 year old CPA. Recently I went in for a job interview, and I could immediately see the disappoinment (maybe too strong a word) on the thirty something interviewer, and I still don't have gray hair or a bald head. There is job and age discrimination out there even if not willful. We are living longer, but what do we do about age discrimination in a dynmic job switching economy? It would be fine to raise the retirement age, etc. as long as qualified workers weren't discriminated against, AND the workers were actually needed and not used to drive down wages per Karmakin's post above.

Posted by: Fred | Jan 3, 2005 7:03:40 PM

Bush's proposal would require immigrants demonstrate that they have a job before coming here, which combined with stricter border enforcement would have the effect of dramatically reducing the number of immigrants entering the country, legal or otherwise.

Green Democrat: If that were the case the proposal would be supported with wild enthusiasm by the isolationist/Buchananite right. It is not supported by these folks (to say the very least), because it would not have the effect you indicate. Rather, firms and agribusinesses would avail themselves of the program to import workers above-board, thus (hopefully) bringing at least a portion of the underground labor economy into the light of day. My own guess is will have a modestly positive effect on total immigration numbers into the USA.

Posted by: P.B. Almeida | Jan 3, 2005 7:09:04 PM

"Green Democrat: If that were the case the proposal would be supported with wild enthusiasm by the isolationist/Buchananite right."

Whatever. The Buchanan right wants nothing short of all illegal immigrants being rounded up and deported, and a moratorium on even legal immigration from most places.

You're still ignoring my central point though, which is that the right-wing boomers who control all three branches of the federal government will not do the one thing that could save generation x from serious economic hardship over the next two decades, which is dramatically increase immigration to this country (and we would need somewhere between 15 and 30 million people of working age to offset the crippling tax increases and implosion in both consumer spending and the markets that will come from the precipitous decline in Americans of middle age, and peak spending years.) And not only will they not do it you can be sure that it hasn't even crossed their collective mind because they clearly don't give a flying fuck about the next generation.

Posted by: Green Dem | Jan 3, 2005 7:21:45 PM

In my personal experience, the largest (by several orders of magnitude) "disincentive ... for able-bodied people to keep working" is age discrimination. The difference in SS benefits is trivial compared to that.

I think one thing we have to think about is that as lifespans increase, and the population grows on average grayer, there is great potential for whole new industries, and new enterprises in existing industries, to serve the particular material and service needs of an older population. A natural source for the work force to people these new enterprises will be the older population, beginning new careers at points later in life than those to which we are now accustomed.

And of course the retirement age will have to move gradually upward as lifespans increase - that is only logical. There has to be some sort of stable ratio of children at one end, retirees at the other, and workers in the middle.

Increasing the retirement age only seems a dreary prospect when we think stereotypically of these older workers trapped on a decades-long slide of career decline, age discrimination and diminished earnings.

But suppose we as a society think about ways of encouraging entrepreneurial activity among older Americans, making funds available for education and retraining later in life, and stimulating investment in the gray economy? Who better than older people to understand the economic opportunities available in serving their peers?

Moves to stimulate this sector of the economy could also provide a competitive boost to the US. Longer lifespans will gradually move from the developed world to the developing world. As the gray economy grows in the US, these emerging enterprises will have a head start on competitors, and be positioned to expand internationally as demand develops.

Posted by: Dan Kervick | Jan 3, 2005 7:24:08 PM

I think people should be eligible to receive benefits after "a lifetime of work" of 44 years or so. This means most college grads would not be eligible until age 66 or after, while manual laborers would become eligible at 62, provided their employment was continuous. An absolute eligibility age of 70 could be maintained to catch those who were unable to find regular employment, though their benefits would still be lower.

Along with that, mothers (or fathers, if they stay home) should be credited with 4, 3, and 2 years for their first three children, provided they work less than 20 hours. These years would be credited at their average monthly earning rates, regardless of actual income earned.

Similar to Vaughn, and if it hasn't already been done, I think people receiving benefits should be allowed to work for as long as they are able. The benefits should be counted as normal income (though not taxable wages, obviously) and not given any special consideration under the tax code.

Posted by: Tom DC/VA | Jan 3, 2005 7:24:41 PM

It would be fine to raise the retirement age, etc. as long as qualified workers weren't discriminated against, AND the workers were actually needed and not used to drive down wages per Karmakin's post above.

Fred: wouldn't eliminating the retirement age perhaps constitute some small step against against age discrimination? It seems to me the whole business of having a government-defined "retirement age" is a vestige of a bygone era.

How about: we make Social Security benefits eligibility entirely independent from age per se. Expanding on Matt's idea, we would make eligibility a function purely of time paying into the system (say, the equivalent of 25 years). Thus, one could theoretically qualify for benefits as ealy as one's early 40s. Of course, one's benefit would be drastically lower at that point than if one waited for, say, 40 years of work to start drawing benefits. One's benefits would continue to grow the longer one worked (perhaps we cap it after 60 years of contribution to prevent the incentivization of an absurd-level of workforce participation). Under such a system one could tap into Social Security benefits for temporary periods of time when sufficient need arises (perhaps during periods of unemployment, and/or as subsidy for displaced workers in the process of retraining), and then resume making contriubtions once one is on one's feet.

I don't think, by the way, that we need worry too much about older workers being employed when they're not needed. If anything, given some of the trends evident in our economy, especially the cost of healthcare, it's all we can do to get firms to hire even when workers are very much needed.

Posted by: P.B. Almeida | Jan 3, 2005 7:28:54 PM

You're still ignoring my central point though, which is that the right-wing boomers who control all three branches of the federal government will not do the one thing that could save generation x from serious economic hardship over the next two decades, which is dramatically increase immigration to this country...

Ah, yes, I forgot about that monolithic "right wing baby boomer" cabal controlling all aspects of our national life -- silly me.

For the record I personally favor increasing immigration quotas into this country. I'd like to see the number rise to something like 2 million, with, perhaps, an additional 750k coming here via a guest worker program (I'd certainly be open to the idea a larger permanent immigrant quota in lieu of the guest worker plan). I think you'll find that support for such policy is hard to characterize as either "left" or "right". Certainly immigration in GOP circles is a controversial issue. There's a strong anti-immigration wing of the conservative movement, to be sure. But there's also a Jack Kemp/Ronald Reagan/Arnold Schwarzeneggar wing broadly supportive of immigration. And, of course, there's the Wall Street Journal crowd, which tends to be highly enthusiastic about robust levels of immigration. I can think of a few elements of the progressive coalition who are less than, er, ecstatic, at the prospect of increased numbers of immigrants to these shores. Your fantasy that it is the Right that is monolithically opposed to the concept of immigration is just that.

Posted by: P.B. Almeida | Jan 3, 2005 7:41:22 PM

First, the idea that desk-bound types can work longer because they are not engaging in physical labor may be incorrect. The mind deteriorates along with the body. People are all different in the extent of decline, which starts much earlier but gets markedly steeper around 65. If you guys think you are going to work forever just because you are knowledge workers, think again. Yes, people can and do work around mental limitations, but many people stop working because they know they aren't sharp any more and it feels bad to be second-rate when you used to be first-rate at your job. Second, my husband took early retirement because he spent 2 years unemployed after 9/11 and couldn't get a job. You may not have any choice about whether to retire or not, unless you want to work for minimum wage as a greeter at Walmart. No one seems to be factoring age discrimination into these "early retirement" figures.

Posted by: Nancy | Jan 3, 2005 7:54:40 PM

Age discrimination is a problem, but it is a separate problem. Social Security is not the tool to use against age discrimination. That's what rules, unemployment compensation, retraining are supposed to address.

It is irrelevant to retirement-age changes that people get old and frail. What is relevant is that the average 60-year-old now is FAR healthier and better able to work than the average 60-year-old was SS was started. If the average age at death is going up (and it is), then either the retirement age MUST go up or we MUST accept lower net incomes. That is the choice.

Of these choices, I say work longer. A longer, healthier, more productive life--isn't that what we've been spending all this healthcare money for? Isn't this where we wanted to be? So let's shrug and accept the obvious. Up the retirement ages, and/or remove incentives to retire early. I would love to retire as early as my father did, but it's not the way to pay the collective bills to come.

By the way, the elderly-driving-down-wages argument is so bogus. Distribution of wealth is a legitimate concern, but in the aggregate: how could 10% more workers with 0% more consumers impoverish the country?

Posted by: eric | Jan 3, 2005 8:24:53 PM

eric:

either the retirement age MUST go up or we MUST accept lower net incomes.

If you mean "lower net incomes" in an absolute sense, then this is wrong. Rising productivity means we can afford longer retirements AND still have higher net incomes. And this is natural -- as societies age and get richer, you'd expect them to want to allow people to enjoy the fruits of the increased wealth through increased leisure time. (In this case, retirement.)

This can be easily understood if you think about history. There was a time when there was no retirement to speak of. People just worked until they died. Yet workers were poorer than today, not richer.

If you mean "lower net incomes" in a relative sense, then you're right. But that's fairly meaningless. As long as there's any kind of retirement, workers have lower net incomes than they would if we just took retirees out and shot them. In fact, workers also have lower net incomes than they would if we took children out and shot them.

Nevertheless, both actions are generally deemed to be poor public policy choices.

the elderly-driving-down-wages argument is so bogus. Distribution of wealth is a legitimate concern, but in the aggregate: how could 10% more workers with 0% more consumers impoverish the country?

It's not that it would "impoverish the country," probably. It just would be a question of distribution of wealth, as you say. That is, it could impoverish part of the country, while leaving other parts better off.

Although it might impoverish the country. Low-wage economies tend to be less productive overall.

Posted by: A Tiny | Jan 3, 2005 8:54:24 PM

Raise the salary cap for withholding FICA payroll taxes, from the current $87,500 in annual salary to $150,000, and there is no social security "problem" at all.

Posted by: Deborah White | Jan 3, 2005 9:12:34 PM

"Your fantasy that it is the Right that is monolithically opposed to the concept of immigration is just that."

The liars and morons of the right just never shut up, do you? The point is that it doesn't matter what the left thinks about immigration (or quite frankly anything) at this point. Democrats do not control the White House. Democrats do not control the congress. Democrats do not control the Supreme Court, which means that unless the boomer Republicans who are currently dominant in Washington do not a) raise taxes now or soon and b) take steps to dramatically increase immigration of working age people they will be responsible for passing along a criminally large fiscal burden on generation x.

Posted by: Green Dem | Jan 3, 2005 10:16:41 PM

"Ah, yes, I forgot about that monolithic "right wing baby boomer" cabal controlling all aspects of our national life -- silly me."

Hey PB,

Isn't there a whole wing of the blogosphere dedicated to the cruel, medieval, and delusional opinions of foolish troll cretins like you? You may wanna check it out.

Posted by: David | Jan 3, 2005 10:24:56 PM

The point is that it doesn't matter what the left thinks about immigration (or quite frankly anything) at this point. Democrats do not control the White House. Democrats do not control the congress.

Greeen Dem: Of course it matters. And this is because the GOP caucus is divided on immigration. Knowing that the votes of pro-immigration Democrats can cancel out those of its own anti-immigration, Lou Dobbs-style caucus members could make the difference to the pro-immigration Republican leadership when/if it comes time to craft serious changes to current immigration law.

Posted by: P.B. Almeida | Jan 3, 2005 10:31:44 PM

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