President Reagan has called for the establishment of a bipartisan task force to review Social Security financing. When the task force and other national policy-makers contemplate one matter in particular--the trend toward early retirement--they and the country will be well served if some myths are dispelled.
Myth No. 1: The widespread availability of early retirement benefits is the reason workers have been withdrawing from the labor force before age 65.
While there is some truth to that, particularly for workers covered by private pensions and in good health, it misses the mark. Chronic and high unemployment is the fundamental cause.
Historically, management, unions and workers have favored early retirement as a means of shifting the burden of unemployment at a particular firm from younger to older workers. Likewise, the 1961 Social Security amendments extending the early retirement option to men aged 62 to 64 were developed during a recession, in part to encourage older workers to retire. Early retirement provisions have served to absorb and hide much unemployment.
Myth No. 2: Most early retirees leave work voluntarily.
Researchers have generally concluded that there are two groups of early retirees--one that leaves work in good health and by choice, and a larger group that leaves work because of health problems. One Social Security Administration study shows that 54 percent of male workers retiring between ages 62 and 64 cite health as their main reason. When jobs are scarce, older workers with health problems are not competitive.
Myth No. 3: Most early retirees are financially comfortable.
Studies consistently suggest that most early retirees lack pension coverage other than Social Security. They accept reduced Social Security benefits or other income opportunities. SSA data show that only 15 percent of nonworking men accepting Social Security benefits at age 62 retired voluntarily and with second pensions, while 45 percent left work involuntarily without a second pension. Not only do most involuntary early retirees take a dramatic cut in income, but their health precludes supplemental work.
Myth No. 4: Reducing early retirement benefits or postponing the retirement age under Social Security will discourage early retirement.
To discourage early retirement, the president submitted proposals to Congress last May calling for (1) a decrease in benefits at age 62 from 80 percent to 55 percent of the full Social Security benefit, (2) a reduction in spouse benefits for future early retirees and (3) elimination of non-medical factors from the disability determination process. Similarly, led by its influential chairman, J. J. Pickle, the House subcommittee on Social Security has given serious consideration to gradually reducing early retirement benefits and postponing the retirement age for full benefits beginning in 1990. While political reaction has made passage of these proposals highly unlikely until after the 1982 congressional elections, this type of proposal is not dead. So the question remains, would these proposals discourage early retirement?
The answer is, "Not to any great extent." For most early retirees, it would be extremely discouraging, but would not prevent early retirement. Regardless of whether Social Security benefits are halved, quartered or eliminated, many workers will still be forced out of work before the age of 65 because they are in poor health or because jobs are not available.
Stripped of this mythology, the "quick fix" of raising the retirement age becomes less attractive. On the other hand, proposals of the 1979 Advisory Council on Social Security and the President's Commission on Pension Policy to liberalize eligibility criteria for the SSI and Social Security Disability programs and ents lto develop a special unemployment program for older workers take on added importance. Plainly, these types of proposals must accompany any effort to raise retirement age if accepted standards of adequate and equitable treatment of citizens are to be maintained.
Further, rather than proposing cuts for involuntary early retirees, we should be seeking to provide full benefits to workers prematurely forced out of the labor force. In terms of dealing with the appropriate goal of encouraging later retirement for those capable of continued employment, preferable alternatives may include (1) tax incentives encouraging employers to provide flexible retirement and part-time employment, (2) increasing Social Security benefits for later retirees and (3) changes in the tax law to discourage private employers from offering pension plans that encourage early retirement for healthy workers.
In spite of considerable research and human hardship, the early retirement problem has been cast almost entirely as a pension cost problem. As national debate unfolds, it is essential that Congress move past the mythology. Otherwise, policies will emerge that reduce Social Security taxes without meeting the long- term interests of taxpayers.