Social Security age ‘fix’ may not live up to expectations
Every politician worthy of the name knows that the easiest policy changes to put over are those that don’t kick in until well into the future. The idea, of course, is that by the time their dire ramifications become evident, they’ll be someone else’s problem.
That must be why it has become so fashionable in Washington to propose raising the Social Security retirement age.
This nostrum is an element of the “Roadmap for America’s Future” promoted by GOP Rep. Paul D. Ryan of Wisconsin (who calls it, with Orwellian duplicity, “modernizing” the retirement age). In recent weeks it has also been embraced by such Democrats as House Majority Leader Steny H. Hoyer of Maryland, who says “we should consider a higher retirement age or one pegged to lifespan,” and Rep. James E. Clyburn of South Carolina, who proposes raising the retirement age by one month every year.
President Obama’s bipartisan deficit commission is believed to be toying with the retirement age change as part of its Social Security plan. We don’t really know, because the deliberations of its Social Security working group are taking place behind closed doors. So much for “open government.”
“I’d call retirement age the leading issue” in discussions about Social Security finances, said Nancy J. Altman, a longtime expert on pension issues who is co-director of Social Security Works, a Washington advocacy group for the program.
It’s obvious that the promoters of this idea haven’t thought carefully about its consequences. But they do know that those consequences are conveniently distant, so who cares?
Leaving aside that the urge to “fix” Social Security is based on a raft of misconceptions and deliberate misrepresentations about its fiscal health, the so-called reformers always specify that nothing they propose would affect those already retired or nearing retirement.
Much of the rest of the population, they’re aware, already has been trained by decades of anti-Social Security propaganda to doubt that the program will be around to serve their own retirements, so, again, who cares?
But we should care. The major problem with raising the retirement age is that its beneficial effects are likely to be much smaller than its proponents expect. It might even have a negative effect.
Nor do they understand that the change will hurt different groups of recipients to differing degrees. That’s important because the program’s relatively even-handed treatment of people across the socioeconomic spectrum has been a key to its great popularity among the voters.
Some of this is surely counterintuitive. If people are living longer than they used to, doesn’t that raise the cost of Social Security benefits? And won’t pushing off retirement for a few years fix that?
Not necessarily. For one thing, longevity has hardly soared. The average life expectancy of someone who has reached age 65 was about 78 in 1940 and about 83 in 2005. In other words, a gain in the average length of retirement of about five years over six decades. And that’s for the whole population. For black males, there has been a gain of just over 21/2 years, to an average of 80 for those reaching age 65 in 2005.
That’s not nothing, but it isn’t 20 years, as some people, like former GOP Sen. Alan Simpson of Wyoming (a member of the deficit commission), seem to think. Also, it has been addressed by changes in Social Security taxes going back as far as 1983.
Raising the full retirement age is the equivalent of a benefit cut for all. Currently, you can start collecting Social Security as early as age 62. But you don’t get your full monthly stipend unless you wait until 66, and you can get even more per month for every year you defer up to the age of 70. (The full benefit age already is set to rise to 67 for people born in 1960 or later.)
If your normal retirement age was 65 (that is, you were born in 1937 or before), you could have received 80% of your full monthly payment for life if you retired at 62 — if you were due $1,000 a month upon retiring at 65, that would be reduced to $800 if you started at 62.
Today’s 50-year-olds will have to wait until age 67 to get that full $1,000; retiring at age 62 will get them only $700, and retiring at the old standard age of 65 will get them only $867.
Every year that the normal retirement age is raised translates into a 6.7% cut in benefits, observes Henry Aaron, a healthcare and retirement expert at the Brookings Institution. Raising the age to 70, in other words, would amount to an effective cut of 20% for everyone — no small change.
Moreover, not everybody has the same capacity to put off retirement until 65, much less 70. People in stressful occupations, such as auto workers, construction laborers or nurses, may have less flexibility to coast through to a late retirement than lawyers, university professors or those kings and queens of the plush lifestyle, members of Congress.
Surveys also have shown that many Americans would like to work to 65 but can’t, often for health reasons, or because they are pushed into early retirement by their employers.
For lower-wage workers, an early departure can be painful, as they are less likely than their better-paid counterparts to have well-funded 401(k) plans or other resources to bridge the gap until Social Security.
“Given what’s happened to 401(k)s and home equity, and given that Social Security is the most efficient way we have of delivering retirement benefits, what strikes me is the benefits are too low,” says Altman. “You’re only making them less adequate by raising the retirement age.”
What happens to workers who can’t wait for Social Security’s old-age program? They often file for disability — and that may become a much greater threat to Social Security than the change of a few years in life expectancy.
That’s because Social Security’s disability fund is much more strained than its old-age fund, in part because disability claims rise sharply at times of high unemployment, like now. You may have heard that this year, for the first time, Social Security’s tax income will fall short of its outgo. (The gap is filled by interest income on the program’s Treasury bonds.)
But that entire shortfall is due to disability: According to the 2009 report of the system’s trustees, the projected 2010 payroll tax income for the old-age program will be $599.4 billion, and benefits and expenses will come to $581.2 billion. But the disability insurance fund will collect tax revenue of $101.8 billion and pay out $128.1 billion in benefits and expenses.
Because the old-age and disability funds are often treated as a single entity, this makes it look as though the entire Social Security program will be in the red this year. But the numbers really show that raising the retirement age won’t help the old-age program one bit, while shoving more people onto the disability rolls will make everything much worse.
To put it another way, left to their own devices the retirement age crowd will solve a problem that doesn’t exist, while exacerbating a problem they don’t seem to know about. I’d ask if this is any way to make policy, but I know from experience that when it comes to Social Security it’s par for the course.
Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at email@example.com, read past columns at https://www.latimes.com/hiltzik, check out https://www.facebook.com/hiltzik, and follow @latimeshiltzik on Twitter.