In an effort to shore up its balance sheet, the Greek government recently announced plans to increase the official retirement age to be eligible for a state pension from 61 to 63. That set off howls in Greece--.and Germany. Elsewhere on the Continent, Spain too finds itself in a retirement-age brawl with its citizens. And over in the United Kingdom, a new report says plans to increase the public retirement age to 68 falls short.
The Work Out
While Greek citizens are hoppin' mad at the increase in their retirement eligibility, they currently have one of the lowest retirement age requirements in the EU. That fact is not lost on Germany, which faces the prospect of having to lead a bailout of Greece. As reported in the UK's Guardian, an editorial in the widely read German newspaper, Frankfurter Allgemeine Zeitung, Germany put the retirement-age issue front and center in the EU financial crisis:
- "The Greeks go onto the streets to protest against the increase of the pension age from 61 to 63--Does that mean that the Germans should in the future extend the working age from 67 to 69, so that the Greeks can enjoy their retirement?"
And a new study put out by PricewaterhouseCoopers says the United Kingdom's plan to increase its public retirement age from 65 to 68 by 2046 doesn't go far enough; the consulting firm recommends raising the retirement age to 70 by 2046 to help put a dent in the U.K's budget deficit.
The knee-jerk protests to raising the official retirement age conveniently overlook one crucial point: life expectancy has shot up a lot more than the increases in retirement age being proposed by the various governments. The Economist recently ran a great graphic showing that the average life expectancy for men after retirement has pretty much doubled in every country since 1965. Including Greece and Spain.
Closer to Home At some point, if (when?) Washington gets serious about addressing the budget deficit and the precarious financial footing of Social Security, the age issue needs to be put on the table here in the U.S. as well. Yes, we should ensure that individuals unable to continue working due to poor health can start to draw early benefits. But for the vast majority of individuals it simply makes little economic sense to be able to draw a reduced benefit at age 62 that is 25 percent to 30 percent less than what you qualify for at your full retirement age. If the odds were good that you would keel over by 65 drawing the smaller benefit would be reasonable. But in fact the average life expectancy for a 65-year is about 20 years. Seems like encouraging individuals to at least work until they qualify for the larger benefit available at their Full Retirement Age (between 65 and 67 depending on your year of birth) makes a whole lot more sense-for individuals and the solvency of the system-than Dennis Kucinich's recent proposal to encourage early retirement. And if by some miracle we got really serious about addressing entitlements, raising the Full Retirement Age past 67 makes financial sense as well. According to the Center for Retirement Research at Boston College, speeding up the current transition to a FRA of 67 and then indexing future FRA levels to changes in longevity would "solve" 30 percent of Social Security's financing woes.
Source: CRR Social Security Fix It Book
Paul Volcker recently said the Social Security retirement age should increase -though he advocated a slow shift over time. Keep in mind that the last time Congress tackled the age eligibility issue was 1983, when according to the American Council of Life Insurers, men age 65 had a life expectancy of about 14 years and women nearly 18.5 years. Those averages have risen 2.5 years for men and 1.5 years for women. Raising the Social Security Age just a year or so, as mentioned by Volcker, wouldn't really be a penalty, as much as adjusting to our longer life expectancy.