According to the 2022 report of the Social Security Trustees, the Social Security Trust Fund will be able to pay full benefits until 2035, and incoming payroll taxes will be sufficient to pay 80 percent of scheduled benefits thereafter. Some are using this modest gap in long-term funding as a pretext to justify proposals for large cuts in Social Security benefits designed to reduce the federal deficit and increase Social Security’s solvency. One frequently discussed change to Social Security is to increase the age at which a retiree receives full benefits. For all retirees, increasing the full retirement age will result in a cut in benefits. It is therefore not surprising that this proposal is very unpopular with the American public. Not only is it unpopular; it’s also bad policy and one that the National Committee to Preserve Social Security and Medicare strongly opposes.
Retirement Age Has Already Been Increased
The retirement age for full Social Security benefits has already been increased from 65 to 67 for anyone born in 1960 or later. This increase was enacted in 1983 as part of comprehensive legislation to strengthen Social Security’s financing at a time when the program faced an imminent financial crisis. The increase in the full retirement age has been phased in slowly based on a person’s year of birth.
This retirement age increase significantly cuts benefits for anyone retiring before their new full retirement age. For example, when the full retirement age was 65, workers retiring at age 62 received an initial benefit that was 20 percent less than their full benefit amount. When the full retirement age reaches 67, workers retiring at age 62 will receive a 30 percent cut in benefits. If the age were increased to 70, a worker claiming retirement benefits at age 62 would have their benefits reduced by nearly one-half.
Despite these benefit cuts, more than half of all people applying for Social Security retirement start benefits before their full retirement age. Of the approximately 2.7 million new retired-worker beneficiaries that filed for benefits in 2021, 29 percent claimed benefits at age 62 (the first year of eligibility) and 57 percent were under the age of 66. Approximately one-fourth (25 percent) claimed benefits at age 66, while only 18 percent were age 67 or older.
Impact of Raising the Retirement Age Beyond Age 67
Proponents of increasing the retirement age argue that people are living longer, and, therefore, can continue working for more years. It is unclear, however, to what extent this assumption is true or, if it is, how much higher life expectancy might rise. According to the most recent report on longevity in the United States from the Centers for Disease Control and Prevention, between 2019 and 2021, life expectancy in the United States declined 2.7 years, with most of the decline (66.7 percent) occurring the first year of the COVID-19 pandemic. United States life expectancy at birth for 2021, based on nearly final data, was 76.1 years, the lowest it has been since 1996. Male life expectancy (73.2) and female life expectancy (79.1) also declined to levels not seen since 1996. In addition to COVID-19, other factors such as increased obesity, and drug and alcohol-related deaths have contributed to the trend.
While the pandemic and other factors had a negative impact on life expectancy, the impact on Social Security’s Trust Funds is less clear. The most recent Report by Social Security’s Trustees in 2022 documented the Trustee’s best estimates of the effects of the COVID-19 pandemic. The pandemic was projected to have continuing significant effects on the Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) programs in the near term, however, the future course of the pandemic is uncertain. On balance, the projected long-range actuarial status of the OASI and DI Trust Funds was little changed by the effects of the pandemic and ensuing recession, considering both the effects realized to date and those yet expected. The Trustees will continue to monitor the development of the pandemic and adjust their projections accordingly in future reports.
It is clear from the Report, and confirmed by Social Security’s Chief Actuary Steven Goss, that the primary driver of Social Security’s funding gap over the long term is not an increase in life expectancy but our country’s significant drop in birth rates. According to the Report, the projected cost of Social Security generally increases faster than projected income through about 2040 primarily because the ratio of workers paying taxes to beneficiaries receiving benefits will decline as the baby-boom generation retires and is replaced at working ages with subsequent lower birth-rate generations. The effects of the aging baby boom and subsequent lower birth rates will have largely stabilized between about 2040 and 2055, but annual cost is projected to grow significantly faster than income between 2055 and 2078 due to the period of historically low birth rates starting with the recession of 2007-09. Between 2078 and 2096, cost is projected to grow somewhat slower than income, reflecting a return to a stable ultimate birth rate of 2 children per woman for 2056 and thereafter.
The variations in the historical total fertility rate resulted from changes in many factors, including social attitudes, economic conditions, birth-control practices, and the racial/ethnic composition of the population. Since the baby-boom era (1946-65), women have had higher educational attainment, higher labor force participation, an older average age at first marriage, a higher propensity to remain unmarried, and higher rates of divorce. All of these factors are consistent with continued lower total fertility rates than those experienced during the baby-boom era.
Life expectancy varies significantly by race
In the United States, Whites tend to live longer, on average, than Blacks although the longevity gap, as calculated at birth, has decreased over time. To explain this racial differential, researchers point to higher mortality for Blacks due to health disparities as well as interactions among factors such as inequalities in socioeconomic status, behavioral factors, access to health care, and environmental surroundings.
The non-Hispanic American Indian or Alaska Native (AIAN) population has experienced the largest decline in life expectancy, from 67.1 in 2020 to 65.2 years in 2021, the same life expectancy of the total U.S. population in 1944. The non-Hispanic White population had the second greatest decline in life expectancy (77.4 to 76.4) and was the lowest seen since 1995 for the White population (regardless of Hispanic origin). Life expectancy for the non-Hispanic Black population declined from 71.5 to 70.8 years, a level last seen in 1996 for the Black population (regardless of Hispanic origin). Life expectancy for the Hispanic population declined to 77.7 years, a level lower than in 2006 (80.3), the first year for which life expectancy estimates by Hispanic origin were produced. The non-Hispanic Asian population had the smallest decline in life expectancy (83.6 to 83.5) and maintained its status as the population with the highest life expectancy in the United States.
In light of these differences in life expectancy, it is clear that any increase in Social Security’s full retirement age (FRA) will have the harshest impact on minority workers.
Life expectancy varies significantly by income
Researchers have long documented that life expectancy is lower for individuals with lower socioeconomic status (SES) compared with individuals with higher SES. Recent studies analyzed by the Congressional Research Service provide evidence that this gap has widened in recent decades. For example, a 2015 study by the National Academy of Sciences (NAS) found that for men born in 1930, individuals in the highest income quintile (top 20%) could expect to live 5.1 years longer at age 50 than men in the lowest income quintile. The analysis also found that this gap has increased significantly over time. Among men born in 1960, those in the top income quintile could expect to live 12.7 years longer at age 50 than men in the bottom income quintile. This NAS study finds similar patterns for women: the life expectancy gap at age 50 between the bottom and top income quintiles of women expanded from 3.9 years for those born in 1930 to 13.6 years for those born in 1960. This is not surprising considering higher income workers are less likely to have physically demanding jobs and more likely to be covered by high-quality employer-sponsored health insurance.
This growing gap between the lifespans of the rich and poor is already eating away at the benefits that lower income workers can expect from Social Security. An April 2016 report released by the US Government Accountability Office (GAO) found that American men who make about $20,000 annually are likely to lose as much as 14 percent of their Social Security lifetime benefits because of their shorter-than-average lives, while men making $80,000 per year stand to see a gain of 18 percent in their benefits given their additional years on earth. Boosting the retirement age would only exacerbate those disparities, the GAO warned.
In a policy experiment in its 2015 study, the National Academy of Sciences (NAS) simulated an increase in the full retirement age (FRA) to age 70. The study found that for males born in 1930, for the lowest income quintile, the increase in the FRA reduces benefits by 25% of baseline benefits, and for the highest income quintile, benefits are reduced by 22%. For males born in 1960, benefits too fall by 25% for the lowest income quintile and 20% for the topmost quintile. This simulation is able to capture behavioral responses to an increase in the FRA, and the authors find that higher earners are able to delay claiming retirement benefits longer than lower earners, and their longer life expectancy in post-benefit years results in a smaller drop in lifetime benefits. Thus, an increase in the FRA would increase the gap in lifetime benefits by income quintiles.
Policy proposals that increase the retirement age will tend to skew Social Security benefits toward higher earners. Acknowledging this, some proponents have suggested raising Social Security’s minimum benefit to protect very low earners who have experienced little to no longevity gains. Research has shown that the positive association between life expectancy and income weakens only around the top fifth of the income distribution. In addition, establishing such a threshold could have unexpected and undesirable side-effects. For example, women, who on average tend to live longer than men, typically have lower lifetime earnings than men. If a low earnings hardship threshold were adopted to protect low earners from a change in the FRA, this could have the perverse effect of protecting women with a life expectancy advantage while failing to protect many men with somewhat higher earnings but lower life expectancy. Thus, a simple hardship threshold based on low earnings in policy proposals that increase the retirement age will likely not adequately protect all affected by the uneven gains in life expectancy.
Older workers may be unable to continue working
It is also important to recall that not everyone is healthy enough to continue to work even if they would prefer working into their later years. This is especially true of workers with physically demanding jobs. While fewer factory jobs exist today than in the past, many service jobs are backbreaking, including nursing and nursing home care, janitorial jobs, outdoor service jobs, waitressing, or any job where workers must stand on their feet all day. A March 2016 study by the Center for Economic and Policy Research found 10.2 million workers ages 58 and older employed in physically demanding jobs or jobs with difficult working conditions. Less than 28 percent of women aged 65-69 are in the labor force. The share is considerably lower for less-educated workers, who would be in the most physically demanding jobs. Expecting these millions of older workers to continue in these jobs an additional 3 or more years is often not reasonable or possible for them physically.
Some proponents of raising the retirement age, acknowledging the health disparities affecting older Americans’ ability to work have offered vague assurances that ‘some kind’ of program will be designed to protect those who truly cannot work until age 70. In fact, we already have a program designed to accomplish exactly this goal – Social Security’s disability program. As part of their Federal Insurance Contributions Act (FICA) contribution with every paycheck, workers are earning a benefit intended to protect their families in case of the loss of income as a result of retirement, disability or death. The disability program was intended to provide a benefit for those whose physical impairments prevent them from working, without perversely creating an incentive for those who could work to stop doing so. These conflicting objectives, along with decades of underfunding the Social Security Administration’s operations, have resulted in a dramatic growth in disability backlogs where delays have become legion. Applicants have been forced to wait a year or more for hearings to determine eligibility for Social Security disability benefits, and nearly 110,000 Americans have died while waiting for a hearing. Expecting this already overburdened system to handle potentially millions of new claimants or creating an entirely new program that does not suffer from the same conflicting goals is unrealistic and a disservice to the millions of disabled American workers who would be caught up in the endless red tape that would result.
Finally, while many older workers may be healthy enough to work, jobs for them may simply not exist. Although high-income professionals are often encouraged to continue working indefinitely, few employers are eager to employ 70-year-old blue-collar or service workers. In fact, older workers are typically among the first targeted for buy-outs or reductions in force when the economy contracts and are rarely recruited by employers absent a severe worker shortage. Additionally, older workers generally experience longer average periods of unemployment than younger workers. Although studies have shown the many contributions older workers bring to their employers, most companies remain focused on the bottom line – which typically reflects higher costs for older employees. Today’s technological changes can also be challenging to an older workforce unless an employer prioritizes training. Few employers are willing to invest the significant amounts that would be needed to recruit or retain older workers when qualified younger workers are available to fill those jobs.
For these reasons, unless there is a dramatic change in employer attitudes or in the structure of our workforce, most workers will continue to retire below their full retirement age. Despite the impression left by some, the average yearly Social Security retirement benefit is modest – $21,924 in 2023. Cutting these benefits essentially in half by raising the retirement age will result in millions of today’s workers facing poverty in retirement and will exacerbate the disparity in lifetime benefits received by lower and higher-income individuals.
Conclusion
Those policymakers proposing raising Social Security’s retirement age should recognize what a dramatic change this would be for millions of American workers. American life expectancy is decreasing, not increasing. Instead of protecting future generations, raising the retirement age will dramatically cut benefits for younger generations of workers, especially those at lower-income levels. The cuts will have their greatest impact on those who can afford them the least – lower income workers with a shorter life expectancy, who are less likely to be able to continue working to age 70. Considering the modest nature of Social Security’s existing benefits, cutting them further, no matter how it is accomplished, should not be the first or even the last place Congress looks for budget savings.
SOURCES
https://www.ssa.gov/oact/TR/2022/tr2022.pdf
https://www.cdc.gov/nchs/data/vsrr/vsrr023.pdf
https://www.gao.gov/products/gao-16-354
https://crsreports.congress.gov/product/pdf/IF/IF12323
https://crsreports.congress.gov/product/pdf/R/R44846/6
Government Relations and Policy, February 2023