Moving the Retirement Goal Posts?

In my book and at Financial Armageddon, I have suggested that, at some point, authorities would have little choice but to raise the retirement age. In a post I published more than a year ago, "No Rest for the Weary," I wrote the following:

Given that the U.S. faces similar demographic pressures [as a number of advanced economies in Europe and elsewhere] and is burdened with a social safety net veering towards eventual collapse, it won't be long before the idea of raising the retirement age, despite protests from organized labor and other groups, is firmly on the American political agenda.

Well, it didn't take very long. All of a sudden, such talk seems to be gaining a bit of traction. In "Actuaries Say Raise Retirement Age for Benefits" the Associated Press details the latest development.

Call it necessary to save Social Security as people live longer

Want to keep Social Security from going bankrupt? Make future recipients wait longer for their first benefit check because they probably will live longer anyway, an influential group of actuaries says.

The next president and a new Congress will come under increasing pressure to act to fix the Social Security system. Democratic presidential candidate Barack Obama rejects any increase in the retirement age while his GOP rival John McCain opposes tax increases as a possible fix.

The American Academy of Actuaries, which advises policymakers on risk and financial security issues, wants any potential solution the White House and lawmakers might consider to include raising the retirement age from the current range of 65-to-67-years-old. The group provided The Associated Press with an advance look Thursday of its recommendations.

Current benefits are supplied by payroll taxes from today’s workers, all of whom pay a 6.2 percent Social Security payroll tax on income up to $102,000. Their employers match it, for a total tax of 12.4 percent. The tax applies only to earned income, not to passive income such as dividends and interest.

Benefits are projected to exceed the Social Security system’s tax revenues in about nine years. The program’s trustees have said the Social Security trust fund will be depleted by 2041 without changes.

A major problem, the actuaries say, is that people are living longer. That means they are drawing more money from the program.

When Social Security started in 1935, the average American’s life expectancy was just under 60 years, according to the Social Security Administration. By comparison, people now eligible for Social Security can expect to live on average a little past 76, the agency says, “meaning workers have more time for retirement and more time to collect Social Security.”

For many years, 65 has been the retirement age to receive full benefits. But under changes in 1983, only people born before Jan. 2, 1938, can collect full benefits at 65. Those born after that date face a gradually rising retirement age for full benefits until it reaches 67.

Current estimates show that by 2040, 65-year-old men and women could live at least 18 more years after becoming eligible for full Social Security benefits.

“You just can’t have people living longer and longer and longer, and have the program with a frozen normal retirement age of 67. It just doesn’t make sense,” said Bruce Schobel, the chairman of an academy task force on retirement security principles. “Eventually people will have a larger and larger proportion of their lives spent in retirement until you reach the point where we just can’t afford it.”

The academy is not staking out a position on when people should retire and acknowledges that saving Social Security will take more than just raising the retirement age.

“All that we’re suggesting is that some increase in the retirement age should be part of any package,” Schobel said.

Obama already has rejected such advice. “We will not raise the retirement age,” Obama said in June at a campaign event in North Carolina.

Obama has, however, called for a Social Security payroll tax on incomes above $250,000 a year, compared with the current $102,000 threshold.

“Barack Obama is opposed to raising the retirement age. He believes we should strengthen Social Security while protecting the middle-class families that rely on it,” said Jason Furman, Obama’s campaign economic policy director. “To that end, he would like to work with Congress on a plan to ensure that people making over $250,000 pay a little more to strengthen this vital program for generations to come.”

McCain originally said everything was on the table to fix Social Security. He recently has amended that position, saying he would not increase payroll taxes. “I want to look you in the eye: I will not raise taxes or support a tax increase,” he told supporters Wednesday.

Former Texas Sen. Phil Gramm, who served as a McCain adviser until he resigned earlier this month, told The Washington Times this month that a bipartisan deal to save Social Security might include raising the retirement age to 70 over 30 years.

Comments

[roger]

Moving the Retirement Goal Posts? this maybe so,we may even move civilization back to the dark ages.We are capable to produce food & shelter for everyone but it seems that we are incapable to control the financial sector witch has become THE dominant force in our lives.Money witch can be exchanged for all things has now replaced the sun in heaven.Noting is more important than MONEY! The story of Midas was written over 2000 years ago ,maybe the old Greeks knew something we don't.I'm 83 now so I don't worry to much about my future but I do worry about the future of my species witch are so intelligent and yet ho sooooo stupid.

[iClaudius]

How about cutting the Military/Industrial Gravy Train Meal Ticket Boondoogle useless war mongers budget and apply the savings to Social Security.

The US military defeated Nazi Germany and Imperial Japan in 3 and a half years in the 40's. Today's bloated military wankers can't even stabilized a small country like Iraq in 6 YEARS. I want my money back from the den of thieves at the Pentagon.

Give the Welfare Queen Pentagon's budget to social programs, they can't find their asses with both hands

[A. Zarkov]

"When Social Security started in 1935, the average American’s life expectancy was just under 60 years,..."

That's not the relevant statistic. You want to know the average life expectancy of people reaching 65 year old today. The primary reason life expectancy has increased is the drop in infant and childhood deaths since 1935. Today's demographics are also different. In 1935 90% of the US population was white, but today it's down to 67%. That too will change life expectancy at 65.

[CathyG]

Working longer is fine for people who have had jobs that haven't broken down their bodies and who have managed to maintain their health. It's not an option for everyone.

A bigger problem is that corporations have shown no interest in hiring or retaining older workers. They're always the first laid off when "downsizing," "rightsizing," and implementing "reductions in force."
Go to any workplace you like and count up the number of grayheads around - there won't be many. Laid-off older workers have a really tough time finding new jobs and it's nearly impossible for them to replace their earnings.

Those who are able to work to age 68, 70, 73 will almost certainly spend the last 10 to 15 years of their career earning considerably less than they were once able to. Does a lower average salary at the end of your career reduce your social security pension check? It reduces disability.