According to the 2018 report of the Social Security Trustees, the Social Security Trust Fund will be able to pay full benefits until 2034, and incoming payroll taxes will be sufficient to pay about three quarters 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 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 is being 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% less than their full benefit amount. When the full retirement age reaches 67, workers retiring at age 62 will receive a 30% cut in benefits.
Despite these benefit cuts, more than a third of retirement beneficiaries claim benefits at age 62 and live on reduced benefits through their remaining lives. If the retirement age was increased to 70, as some have proposed, a retiree at age 62 would receive only 57 percent of his or her full monthly benefit.
Impact of Raising the Retirement Age Beyond Age 67
Those proposing to raise the age of eligibility for full retirement benefits to 70 or even 72 view this as a way to reduce the deficit and increase Social Security’s solvency. As in the past, proposals to raise the retirement age come with an additional reduction in benefits. The effect of increasing the retirement age to 70, for example, would lead to an additional 13 to 15 percent reduction in benefits at 62. When added to the previously enacted benefit reductions for early retirement outlined above, the total reduction for a person who retires at age 62 could be as much as 43 to 45 percent.
Proponents of increasing the retirement age argue that people are living longer, and, therefore, can continue working for more years. Although it is true that, on average, life expectancy has increased, these longer life expectancies are by no means across-the-board. An April 2016 report released by the US Government Accountability Office (GAO) found that lower-income men approaching retirement live, on average, 3.6 to 12.7 fewer years than higher income men. That is, most of the increase in life expectancy for those who reach age 65 is enjoyed by workers with higher incomes. This is not surprising considering they 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 poor workers can expect from Social Security, the GAO report found. 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.
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 have to 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. Asking these millions of older workers to continue in these jobs an additional 3 or more years is often not possible for them physically.
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 well below their full retirement age. Despite the impression left by some, the average Social Security retirement benefit today is modest – less than $17,000 per year overall with an average of less than$14,000 per year for women. 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.
Those policymakers proposing raising Social Security’s retirement age should recognize what a dramatic change this would be for millions of American workers. 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.