France To Raise Retirement Age; Yours May Go Up Too
The French government is likely to announce an increase in the national retirement age, from the current 60 to 63. The financial crisis is causing soul-searching in a number of other European governments, and because retirement programs are so expensive, but can be adjusted with gradual changes over a long period, France is likely to be the first domino. And even though the U.S. has one of the higher eligible ages, I expect we'll see some adjustments to our Social Security system too. Maybe not this year, but it's got to happen, and if other governments make the first move it may give the U.S. a political and economic cover story.
He doesn't address a possible change to the retirement age, but Chubby Checker is fronting for Social Security!
The French retirement system allows retirement at 60, and the Sarkozy government is expected to propose an increase to 63. General strikes by the labor unions also are expected, says the Financial Times:
All but one of France's five main unions have rejected suggestions that the retirement age should be increased, favouring instead taxes to fill a deficit expected to hit €32bn this year, as much as €45bn in 2020 and possibly more than €100bn in 2050.
The government is highly sensitive to the potential of pension reform sparking widespread unrest and will be watching Thursday's protest closely. Former prime minister Alain Juppé was eventually brought down by national protests in 1995 when he attempted to restructure one of the most generous pensions systems in Europe.Germany raised its retirement age to 67 from 65 three years ago, so it may not make such a ripe target, but finance minister Wolfgang Schäuble has said cuts in unemployment and social security programs are possible in getting Germany's budget deficit under control.
Italy also raised the bar, to 58 from 57, in 2007, but has to find some way to plug expected €25 billion holes in its budgets.
Meanwhile, back here at home, if you live and work in the U.S., and were born in 1960 or later, the age at which you can claim full Social Security benefits is not 65, but 67.
I really hope that is news to no one, but even for someone such as me -- up to my elbows every day in the large and small picture of saving for retirement -- I have not gotten it out of my head that my own retirement age is not 65, but rather 66 years and two months (that is, if I want the full benefit). I can start drawing at 65, but I leave eight percent on the table.
The whole Social Security system was revamped in 1983, when we had just gone through an enormous inflation that sent interest rates through the roof and caused all sorts of changes in financial viewpoints. Increasing payroll tax contributions and extending the retirement age were two of them, and it bought the Social Security system something like another 30 or 40 years of solvency. But that was 30 years ago and it's time to look ahead once again.
The Social Security Administration publishes a trustees report every May, and while the 2010 version is not out yet, I doubt the long-term outlook is very different from last year:
Under the intermediate assumptions, [Social Security benefits paid] will increase more rapidly than tax income between about 2012 and 2030 because the retirement of the baby-boom generation will cause the number of beneficiaries to rise much faster than the labor force.
Annual cost will exceed tax income starting in 2016, at which time the annual gap will be covered with cash from redemptions of special obligations of the Treasury that make up the trust fund assets until these assets are exhausted in 2037. Individually, the DI fund is projected to be exhausted in 2020 and the OASI fund in 2039.
For the 75-year projection period, the actuarial deficit is 2.00 percent of taxable payroll, 0.30 percentage point larger than in last year's report.The translation is that benefits are too high, or payroll taxes are too low. A few years back a big study was made that proposed all sorts of adjustments: increasing tax rates, expanding Social Security to include a lot of state government employees that are not covered today, reducing benefits, and, yes, messing with the ages too. From the executive summary:
This provision would start the increase in [the normal retirement age] from 66 to 67 earlier than currently scheduled by 5 years, starting for those attaining 62 in 2012, and reaching 67 for those attaining 62 in 2017. In addition, the earliest eligibility age (EEA) for retired worker and aged spouse benefits would be increased commensurately, maintaining the EEA at 4 years younger than [the normal retirement age]. Also, the maximum age up to which the delayed retirement credit (DRC) may be earned (currently 70) would be maintained at 4 years older then [the normal retirement age].The minimum early retirement age would be pushed out, and bumping up to 67 would be brought in. It's not law, and not even proposed yet, but that's the sort of thing you can expect to hear.
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