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Faster Retirements Key to Social Security Fix

Dr. Mark J. Stern is a professor at the University of Pennsylvania School of Social Policy & Practice.>

As we celebrate the 75th anniversary of Social Security's Old Age Insurance, it is time to remember a part of the program that has fallen from grace: an interest in encouraging retirement as a means of opening up jobs for younger workers. Over the past generation, our concern with the financial health of Social Security's trust funds has overshadowed this critical element of the program. Yet, as we struggle with 10-percent unemployment and rising poverty rates, it is time to resuscitate this important policy tool.

Before the passage of Social Security, retirement, as we know it, was reserved for the minority of workers who had adequate savings to see them through their old age. Most Americans struggled to hold onto their jobs, because without any pension, they feared they would end their life in dependency and poverty.

The original Old Age Insurance program struck a bargain with older workers. It would provide them with a minimum income, but to receive it, they needed to leave the workforce. As long as one continued to work, one would have to forego one's right to a government pension.

The reason for this strict retirement earnings test was to force older workers out of the labor force. In the middle of the Great Depression, with unemployment rates over 15 percent for the better part of a decade, one of the key policy goals of Social Security was to open places in the work force for younger workers by pushing older workers out.

The term used to describe this process was superannuation, literally too old. At the time, stereotypes of older workers as diseased, stupid, slow, and unproductive dominated our culture. Over the past 75 years, we have come to appreciate that older Americans-like everyone else-must be judged as individuals, not by membership in a group. The passage of landmark legislation that outlawed discrimination based on age or disability was part of this process. As a result, we liberalized the retirement earnings test, making it easier for workers to stay in the labor force and still collect their pension

Times have changed, and it is time for our thinking about Social Security to change as well. Having lost 8 million jobs since 2007, the American economy must find employment for the unemployed and the millions of new workers entering the labor force every year. At the same time, the insecurity of many workers retirement income-often tied to the stock market-has led many older workers to delay retirement at the same time that it's forced other workers into early retirement when their jobs disappeared. We face the prospect of a generation in which older workers who would like to leave the labor force holding onto their jobs while millions of younger workers who want to work are shut out.

As during the Great Depression, Social Security can help both to increase opportunities for younger workers and increase the income security of older Americans. Yet, to do so, we'll need to unlearn much of the conventional wisdom about Social Security. Rather than focusing on the health of the trust funds-as we have since the 1970s-we need once again to see Social Security as a dynamic and responsive policy tool.

How would we do this?

First, we need to reduce the insecurity that has seeped into our retirement income system. Over the past generation, we have poured trillions of dollars into tax breaks for private pensions at the expense of Social Security. Almost all of those tax breaks have gone to high-income workers while most workers have had to face stagnant Social Security payments and inadequate private pensions. By righting the balance between Social Security and private pension tax breaks, we can increase the security of retirement income, reduce economic inequality, and encourage older workers to leave the labor force.

Second, we should tighten the retirement earnings test. In 1975, a worker could earn no more than 2,520 dollars a year if he or she wanted to receive full Social Security benefits. Today, for those under full retirement age, the limit is 14,160 dollars, and there is no limit at all for those over full retirement age. It's time we returned to the intent of the original legislation and provide real incentives for older workers to leave the labor force to qualify for benefits.

Critics will assert that the real Social Security crisis is that the trust funds are going broke and that we need to cut benefits and raise the retirement age to address this. They have it exactly wrong. Older workers don't exist to protect the trust funds. The trust funds exist to protect older workers. We need to return Social Security to its original purposes of providing predictable income for the elderly, encouraging them to retire, and opening job opportunities for millions of workers who need them today and in the future.

By Mark J. Stern:
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