Is Raising The Social Security Retirement Age Really a Benefit Cut?

Just in time for Social Security's 75th birthday next month we have the makings of a new rumble in Washington over the future fate of benefits. Congressmen from both sides of the aisle (Boehner and Hoyer) have recently floated the notion that raising the Social Security retirement age should be on the deficit-cutting table. But according to a new survey sponsored by the National Committee to Preserve Social Security and Medicare nearly 8 in 10 Americans are opposed to any change in the retirement age. I am guessing the other 2 in 10 are actuaries who understand the demographic argument for increasing the age.

Raising the Retirement Age...a Historical Context I know this won't get me invited to the National Committee to Preserve Social Security's birthday party for the program, but I just want to point out that raising the full retirement age to 70 from the current max of 65-67 (depending on the year you were born) wouldn't really be a cut in benefits when measured against life expectancy.

Since Social Security was enacted in 1935, the average life expectancy for a 65-year old has increased six years and is expected to keep climbing.

Yet so far the only age-related adjustment to Social Security has been to increase the Full Retirement Age (FRA) by a maximum of two years (for anyone born in 1960 or later) from 65 to 67. (That change was enacted more than 25 years ago.)

When viewed in the context of a longer life expectancy, is increasing the full retirement age really a decrease in benefits or adjusting the program so it remains in sync with its original intent? And let's be clear, no one is suggesting today's near-retirees are going to have the goal-post moved on them; any changes to the FRA would no doubt be phased in for folks who are still 20 or more years to retirement. When Congress last tackled the topic in 1983 it imposed the biggest change on workers who at the time were no older than 23.

A Limited Payoff Now that said, even though increasing the Social Security retirement age has a solid demographic/actuarial argument behind it, the recent focus on the issue is nonetheless overdone. No matter how you do the math, raising the age will not be a one-stop solution to putting Social Security on a solvent path. A May report out of the Senate Special Committee on Aging shows that incrementally increasing the Social Security FRA to 70 would wipe out less than one-third of Social Security 's projected shortfall. Even if the FRA was also indexed to rise with any future longevity increases that's still just going to cut Social Security's shortfall by less than half.

By comparison, raising the Social Security tax rate by 1.1 percent wipes out the shortfall, as does eliminating the amount of wages subject to the tax (even if you also increase benefits for those higher-wage beneficiaries you still wipe out 95 percent of the projected shortfall.) Seems to me if Washington is serious about shoring up Social Security and addressing the deficit -two big ifs, I concede-there are far more substantive issues that need to be on the table alongside raising the retirement age for Social Security.

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