“Fixing” Social Security
If nothing is done, the Social Security Trust Fund will be depleted by ca. 2035 and projected retirement benefits will drop by ca. 20%. What are the alternatives?
The favorite alternative on the right is to increase the normal retirement age to 70.
“Increase the normal retirement age (NRA) 3 months per year for those age 62 starting in 2026 and ending in 2037 (NRA reaches 70 for those age 62 in 2037). Thereafter, index the NRA to maintain a constant ratio of expected retirement years (life expectancy at NRA) to potential work years (NRA minus 20). We assume the NRA will increase 1 month every 2 years. Also, increase the earliest eligibility age (EEA) from 62 to 64 at the same time the NRA increases from 67 to 69; that is, for those attaining age 62 in 2026 through 2033. Keep EEA at 64 thereafter.”
The argument for increasing the retirement age is that when the program started the average life expectancy was 62 and now average life expectancy is in the 70s or 80s. Of course, most of the increase in life expectancy since 1940 is actually due to an increase in survivorship between birth and age five due to vaccines and antibiotics. The relevant statistic is how much life expectancy for someone *at age 65* has increased since 1940. For men, that has increased about 6 years and for women about 7 years.
Setting aside that increasing the age of SS eligibility is the equivalent of cutting benefits, the Social Security Administration’s own projections would do little to extend the Trust Fund solvency.[1] It’s really no solution at all.
What about other alternatives? One would be to eliminate the payroll tax cap on Social Security. The Social Security Administration projects that would extend the Trust Fund solvency by two decades.[2]
Of course, removing the cap but keeping the same benefit structure turns SS into welfare, a perennial GOP football.
Another alternative would be to leave the cap in place but raise taxes on all workers incrementally to reach an additional 2%. This idea has been discussed extensively here at AB in the past and apparently the math says it would allow full benefits to continue indefinitely.
A third, not mutually exclusive alternative is to allow more legal immigrants as workers. Undocumented workers already subsidize SS when they supply fake SS numbers and their employers send in payments that will never be claimed as benefits. I don’t know how much immigration expansion would be required, but I haven’t seen this seriously discussed.
Summary Measures and Graphs to Social Security Shortfall
[1] Proposed Provision to Social Security Shortfall (see chart above)
(2) Proposed Solution to Social Security Shortfall (see above chart)
RE: Greater ‘life expectancy for someone *at age 65*’
I believe as well that this increase (certainly since 1980 if not 1940) varies with socio-economic status; that it has been much smaller for the less affluent and those who do any kind of (but especially hard) physical labor than for the more affluent and those who push paper or do intellectual/creative work (and are typically less dependent on SS for retirement income). Case and Deaton’s work on deaths of despair adds to this effect.
@marcel,
Of course. That’s why I used the word “average.” I didn’t say everyone lives to exactly the same lifespan. Not only wealth and physical stress but also diet and genetics impact lifespan.
Hope that helps.
Although I don’t support the idea, I predict that increasing the Normal Retirement Age will be part of the fix when Congress gets around to it in 2033. Congress will reach a solution nobody likes of part benefit decreases and part tax increases. They will want to maintain existing benefits, so that will weight the cuts more to future beneficiaries. While raising the NRA has unfortunate social connotations, its mathematical impact is a fairly simple cut to future beneficiaries.
Other possibilities for cuts are changing the bend points used to calculate Primary Insurance Amount, changing how Average Wage Increase is used, and changing the calculation of the COLA. Increasing the retirement age is going to be hard for the simple people in Congress to avoid. A tax increase only solution (such as I do support) will be even harder.
Whether taxation of benefits should be considered a tax increase or a benefit decrease is a matter of perspective. I predict it will come back – perhaps sooner than a more comprehensive fix.
Arne:
Precisely, we may not get what Bruce, Dale and you said would work. The Northwest Plan that one Congressman said would work could still work by minimizing the impact of age-related increases in when social security starts to payout. There is no reason to abandon such.
Since Trump has increased the wealth of the upper 5%, there is no reason not to have a greater SS tax on them either. They were favored by income, etc. tax breaks. So, take some of it back in a greater tax on higher incomes.
The issue is how long can an older person work? Manual labor as opposed to office or lesser labor has an earlier reduction in productivity. They will not age out at 67. They will die sooner. The purpose of higher age before getting SS is more dependent on the death of the person negating a payout or along term payout.
Keep feeding the orange one cheese burgers.
No. Raising the NRA does not prevent early retirement. It is a cut to benefits for those who retire early. It is also a cut to benefits for those who do not retire early. The math and the social message are not the same. Readers here should understand the math as well as the politics.
Arne:
If one can continue working till maxed out, they should as the return will be greater than a monthly Social Security pay out. We both did precisely and kept socking funds away. I maxed out what I could max out and not the total SS limit.
Of course, if a person is ill, they should go when it is necessary. I have issues from being poisoned; but, I am still healthy. There was no reason for me to take SS early. I was paid for my knowledge and ability.
Others might have reasons to collect earlier. I believe where you are going with your comment is; “we should not force people to work beyond 65 to collect 100% SS. I agree, why make it worse?