Retirement at 70
Our Social Security problem is just one aspect of a larger retirement revolution -- an upheaval in medicine, life expectancy, work and lifestyles. Since Social Security's creation in 1935, life spans have increased dramatically. Someone who now reaches 65 can expect to live almost 20 more years. Meanwhile, government has constantly made Social Security and Medicare more generous. The result is "middle-aged retirement," as Eugene Steuerle of the Urban Institute calls it. If people retired for the same number of years now as in Social Security's early years, he says, they'd work until 74. In fact, half of Social Security recipients start getting benefits at age 62.
We can no longer afford this system: It will overburden future generations and could weaken the economy. Congress ought to design a broad makeover of retirement. Americans should work longer. We're healthier (thanks to medical advances and the decline of physical labor) and -- as the number of new workers shrinks -- society will need older workers. Social Security and Medicare were intended to protect the neediest among the elderly; they should not subsidize ever-longer retirements.
Unfortunately, the odds of such a makeover are slim. The Social Security debate has predictably degenerated into a bitterly partisan exercise. The focus on President Bush's proposed investment accounts and on Social Security's "solvency" has produced much techno-babble ("trust fund balances," "rates of return" and the like) while obscuring basic realities. As I've noted in previous columns, these are daunting.
Let's review them. By 2030 spending on Social Security, Medicare and Medicaid (which provides nursing home care) is projected to almost double as a share of national income (gross domestic product). Holding federal spending constant -- again as a share of GDP -- would mean eliminating almost 50 percent of the remaining spending on non-retirement programs. If we paid for higher retirement spending with taxes, we'd have to raise taxes at least 30 percent and, including today's deficits, as much as 50 percent. To me, neither outcome is desirable. If you agree, then the only alternative is to cut retirement benefits. Baby boomers can't be excluded, because they're the people getting older. We need to prod them to work longer -- and to mix work and retirement -- by reducing the subsidies that encourage earlier retirement. For those who truly can't work longer, there's a disability program. Let me sketch what's needed. My aim is to trim the increases in federal retirement spending by half in 2030. Because the projected increases are between 6 and 7 percent of GDP, the required savings is about 3.5 percent of GDP. Here's what I suggest:
· Raise Social Security's n ormal retirement age to 70. Under present law, it reaches 67 in 2027. That's too slow. Increasing it gradually to 70 by 2030 would require annual increases of about two months a year. The eligibility age for early (and discounted) Social Security benefits should also be raised from today's 62 to 66. The savings in 2030: about 0.8 percent of GDP.
· Cut Social Security benefits by 20 percent. Spare retirees whose wages were average or less than average. Above that, cuts would be steeper as retirees got wealthier. Reductions would be (again) phased in slowly. The 2030 savings: about 0.9 percent of GDP.
· Raise Medicare's eligibility age slowly to age 70 by 2030. People from 65 to 70 could get the choice of buying Medicare protection. The 2030 savings: about 1 percent of GDP.
· Require Medicare recipients to pay 20 percent of the program's costs through premiums. Beneficiaries now pay about 12 percent. Premium increases should be introduced gradually, and wealthier retirees should pay more. The 2030 savings: 0.5 percent of GDP.
· Tax Social Security as ordinary income. A lot is now exempt from the income tax. The 2030 savings: 0.2 percent of GDP.
My estimates are admittedly crude, possibly wrong. Without official projections of my proposals, I've made educated guesses using many sources. Assuming the figures are roughly correct, future retirement spending -- and taxes -- will still increase because there will be more retirees living longer and using more medical services. My figures also suggest that tiny changes won't accomplish much. We should take big steps now to give people ample warning.
These proposals will be seen as harsh, even cruel. They aren't. People who reach 62 or 65 or 70 have no automatic claim on their juniors. Why should a couple in their thirties with two children, car payments and a mortgage subsidize the retirement of a couple in their mid-sixties with no mortgage, whose children are long gone, who could still work and who have had a lifetime to save for retirement? The only answer is that older couples expect to be subsidized (in part because they've spent their lives subsidizing their elders) and will be furious if they aren't. But that is a political explanation and not a moral or social justification.
If Americans have to work longer, the economy will create needed part-time and part-year jobs. The real obstacle is the politics and psychology of the retirement revolution: the expectation that people in their early sixties are entitled to stop working. Undoubtedly many Americans prefer having someone else support their leisure. But that was not the original purpose of Social Security or Medicare. The unvarnished truth is that these programs should move back toward their origins, and it's too bad you're not hearing more of it.