Slowly, raising the retirement age gains ground

At least one lawmaker has offered it as a possible way to address long-term financial problems

Author: Larry Eichel

Published: March 14, 2005

Americans are living longer, which is among the main reasons that Social Security has long-term financial woes.

So why hasn't there been more talk in Washington about the one change that would address the situation head-on - raising the retirement age?

For the answer, look at the polls. They indicate that a later retirement age is the public's least favorite remedy for Social Security, less popular even than higher payroll tax rates.

"Have you ever seen a 63-year-old garbage collector, a 68-year-old nurse or a 70-year-old construction worker?" asked Claire Gawinowicz, 51, of Oreland, wife of a former railroad brakeman. "A higher retirement age would be a serious threat to the health of the many, many workers whose jobs are so physically demanding."

But ever so slowly, the idea is gaining ground. Last week, Sen. Chuck Hagel (R., Neb.) proposed hiking the retirement age by a single year, effective in 2023. Then Rep. Steny H. Hoyer (D., Md.) said that Congress should take a look at the idea.

The numbers-crunchers say it will be part of any deal on Social Security, regardless of whether it includes President Bush's private accounts.

"I actually think it's the least harsh of the possible benefit adjustments," said C. Eugene Steuerle, an economist at the Urban Institute who calls Social Security a retirement system for the middle-aged.

The whole concept of the retirement age is fundamental to Social Security. But a lot about it isn't widely understood.

The "normal" retirement age, when a person qualifies for the benchmark benefit, used to be 65. No more; it's been on the move. For people born in 1943, it's 66, where it will stay for a while. It peaks at 67 for those born after 1959, the changes resulting from the Social Security bailout of 1983.

Social Security doesn't tell you when to retire. For most people, there's no great advantage (or penalty) for starting benefits any time between ages 62 and 70. If you start early, you get more checks; if you wait, they're bigger.

More than half of older workers start receiving benefit checks at 62, as soon as they become eligible. That early eligibility age has been in place since 1961 and is not scheduled to rise.

Since the creation of Social Security seven decades ago, the demographic changes surrounding old age and retirement have been striking.

In 1940, only about 64 percent of people born 65 years earlier were still alive. They could expect to survive about 13 more years, and they retired, on average, at 68.

In 2000, 82 percent made it to 65. Their life expectancy from then on had risen to 18 years while their average retirement age had dropped to 63.

Those changes, along with the lower birth rate, are at the heart of Social Security's projected economic shortfall, set at $3.7 trillion over 75 years by the Social Security Administration.

"We have a system based on the notion that we're going to die at the same rates we did in the 1930s," said Richard V. Burkhauser, a Cornell University economist. "That's crazy."

Raising the normal retirement age would help make up the shortfall, by increasing the number of years in which workers pay taxes and decreasing the number of years during which they receive benefits.

Like other remedies, this one is no silver bullet. Economist Andrew Samwick of Dartmouth College estimates that achieving solvency through later retirement alone would force the age to 73, which society is likely to consider unacceptably high.

And powerful forces oppose any change. Among them are the Democratic Party, as per its 2004 platform, the AFL-CIO, and the AARP, which wants to make it easier for older people to remain in the workforce without forcing them to do so.

"Raising the age is about lowering benefits," said John Rother, AARP's national policy director. "We think there are other ways to deal with solvency that are preferable."

If the normal retirement age goes up without the early eligibility age going up as well, another set of problems arises.

The amount early retirees get per month is a pro-rated share of what they would have received had they waited. A few years ago, the share was 80 percent. When the normal age gets to 67, it will be down to 70 percent.

Experts worry that those 70-percent checks won't be enough to keep a lot of 85-year-olds out of poverty, especially widowed or single recipients who outlive whatever other resources they might have.

"Raising the retirement age seems like a logical building block for a solution, but it raises daunting questions," said political scientist Lawrence Jacobs of the University of Minnesota.

What about people forced out of their jobs in their late 50s or early 60s by employers looking to cut costs?

What about members of minority groups who have shorter life expectancies than society at large?

What about the people cited by Gawinowicz of Oreland, the ones who have done physical labor for decades and can't keep going?

Studies show that up to 15 percent of 62-year-olds are physically unable to work. These people could quality for stopgap benefits from Social Security's disability program.

As for people forced out of their jobs by age, that should be less of an issue in the future, when a labor shortage is expected. The percentage of people working past 62 has risen slightly in the last 20 years.

The way Social Security's arithmetic works, increasing the early eligibility age without also raising the normal retirement age wouldn't do much for the system's solvency.

"But it would send a strong signal that we can no longer afford to lose half of our workforce at 62," said Olivia Mitchell, a professor at the Wharton School of the University of Pennsylvania who served on Bush's Social Security commission in 2001.

A more complex option would be to index benefits to changes in life expectancy. Your monthly check might be less than that of someone who retired earlier if statistics showed you had a longer life expectancy than that person had at the time. Hagel's proposal includes this concept, as do several other plans.

Many experts think that change along these lines is all but inevitable.

"On Social Security, you have Democrats associated with tax increases and the Republicans with benefit cuts," said Maya MacGuineas of the centrist New America Foundation. "Doing something with the retirement age or longevity indexing may not be popular. But from the standpoint of the two parties, it may be one of the less divisive options."