With the official White House launch party last week for the President'sit's open season for floating proposals to tackle our national deficit. If we ever get to any consensus on making a serious dent in the problem, it will have to be a multi-prong approach; there's no single silver bullet that will get the job done. I'm hoping (against what I know are very long odds) that raising the Full Retirement Age (FRA) for Social Security gets some serious consideration in the debate.
Index Retirement Age to Life Expectancy Raising the FRA is not punishment. It's actually just making the program equitable across generations. When Social Security made its first payouts in 1940 a 65-year old man had an average life expectancy of 11.9 years. By 2007 the average life expectancy for a 65-year old male had increase to 16.7. Over the same stretch, life expectancy for women shot from 13.4 to 19.2. Yet we have barely made any accommodation for that sharp rise in our life spans. There has been no adjustment of age 62 as the starting point for early retirement benefits. And the Full Retirement Age -- when you are eligible for 100% of your benefits -- only got a relatively small tweak in 1983 legislation that is slowly increasing the age from 65 to 67. That's just a two-year adjustment while life expectancy has increased between five (men) and six (women) years. Moreover, by 2040, 65-year-olds will have another two years added to their life expectancy.
This may not win me any pre-retiree friends, but leaving the FRA right where it is today is inadvertently subsidizing a longer retirement for today's retirees than their parents had. Raising the retirement age shouldn't be cast as a "hard choice for hard times", it would really just be an adjustment to ensure equitable treatment based on longevity. (Of course, some provisions need to be made to continue to offer earlier benefits to those who for physical reasons can not continue. That's not a reason to leave the retirement age untouched for everyone else.)
70 Should be the new 65
In a 2008 academic paper presented to the Society of Actuaries professors Jon Forman and Bing Chen took a look at the issue:
... the Social Security Administration periodically estimates "equivalent retirement ages" for years after 1940, based on a measure that keeps constant the ratio between work and retirement years as life expectancy increases....if we assume that the Social Security system got it about right when it set the full retirement age at 65 for beneficiaries retiring in 1940, then the full retirement age should now be around age 70, and it should reach age 73 by 2070. Needless to say, we are a long way from those optimal full retirement ages.Just One Important Piece of the Puzzle According to the Center for Retirement Research at Boston College, raising the full retirement age for Social Security would reduce the program's shortfall by just 30 percent over the next 75 years. Here's a rundown of some of the more talked-about options for "fixing" Social Security:
As I said earlier, I realize raising the Social Security retirement age isn't a one-stop solution to the solvency issues. We're gonna have to do more. But raising the FRA, and indexing it to future changes in life expectancy, strikes me as a tweak that is long overdue.