Since Social Security began paying out benefits in 1940, average life expectancy of people reaching age 65 has increased by nearly 31/2 years. And this trend is expected to continue into the future, though at a somewhat slowed rate. In light of this and the widely held belief that people will be able to work longer in the future, it is not surprising that many well-informed and well-intentioned people believe the solution to Social Security's projected long- term deficit lies in raising the normal age of retirement to 66 or 67.
But they are mistaken. Raising the Social Security retirement age is unfair and unnecessary. The idea is based on faulty--though seemingly plausible--premises.
First for the unfairness. Savings from this proposal would come disproportionately from many of the most vulnerable future retirees. Raising retirement age to, say, 67 constitutes on average a 13 percent benefit cut for retiring workers, their spouses and most widows--a cut that falls most heavily on those who have little choice but to retire because of poor health or lack of work. Today, workers engaged in heavy labor, workers earning low wages and minority workers are more likely than others to be forced to withdraw from the labor force before normal retirement age. Survey data suggest that between one-third and one-half of current early retirees accepted reduced Social Security benefits and left work primarily for reasons of health and/or unemployment. Many of the others leave in response to private and public pension incentives and by choice.
Raising retirement age would hurt those future older workers who are not in a position to keep working until the new normal retirement age, especially if eligibility for disability benefits is not liberalized and the duration of benefits for the older unemployed is not extended.
It's unfair for other reasons too. Many proposals to raise retirement age would increase the financial problems of women widowed in late middle age. And since, almost inevitably, the raised retirement age in the cash programs would be extended to the Medicare program, the inequity would be compounded for those who cannot work after 65. Many policy-makers and professionals in general can decide how long they want to work. This is not true for people whose work is more physically demanding or whose employment opportunities are less certain. The favorable socioeconomic circumstances of those in a position to influence retirement-age policy as well as their enthusiasm for their work may limit their ability to understand the extent to which raising retirement age would present problems for people in circumstance unlike their own.
Raising the retirement age is unnecessary as well as unfair. It is projected that, once the major elements of the National Commission on Social Security Reform's financing package are enacted, revenues will be sufficient to meet the commitments of the Social Security retirement, survivor and disability programs until about 2030.
Does it really make sense to pass legislation in 1983 that would phase in a later retirement age beginning in 2000 to meet a problem occurring in 2030? Is our ability to project the future so accurate that we can know what the economy will look like in 50 or 75 years?
Many cite the changing dependency ratio as evidence that Social Security cannot meet its future commitments without raising retirement age. Today, there are about three workers for every Social Security beneficiary; at the height of the retirement of the post-World War II baby boom generation, this dependency ratio is projected to be two to one.
But those using this ratio to justify raising retirement age forget to note that the overall dependency ratio (the aged and the young compared with the working-age population, 20 to 64) remains relatively stable over the next 75 years. This will result in less cost for the economy because of relatively fewer children.
They also fail to note that a tax increase representing only a small fraction of the economic growth that Social Security's actuaries project would be more than enough to offset projected deficits.
Finally, there are the faulty premises. Given the expectation that people will live longer in the future, it's natural to assume they will be able to work longer. But as the two expert witnesses on this subject testified before the national commission, it is not clear whether the illness rates of older persons are improving or if their ability to work will necessarily improve. It may be that medical progress will enable more people to live longer, but with more chronic and disabling health conditions.
It has been said that for every complicated problem there is usually a simple solution, and it is usually wrong. So it is with proposals to raise the normal age of retirement.