Opinion pieces and speeches by EPI staff and associates.
What the Grown-ups Should Do About Social Security
by Christian Weller
In remarks to the press in June, the two co-chairmen of President Bush’s Social Security commission made it clear that, in addition to creating private investment accounts, raising the retirement age would likely be among the panel’s recommendations.
Social Security has always been a pay-as-you-go system: today’s workers finance the retirements of today’s retirees. Baby boomers could finance their parents’ retirement without any trouble because there were 3.3 workers for each retiree in 2000. But by 2015, there will be only 2.8 workers for each retiree.
That’s why, in 1983, Congress passed an increase in the payroll tax, the tax used to fund Social Security. With the surplus generated from the higher taxes, a Social Security Trust Fund was established, so that, in preparation for the crush of retirees, the system was no longer exactly pay-as-you-go.
Despite this, the Social Security trust fund, according to its trustees, will dry up by 2038. Then, revenues will be sufficient to pay three-quarters of benefits.
Boomers have spent their lifetimes working hard. They’ve financed their parents’ retirement and paid a little extra for their own. Surely there’s a better way of ensuring Social Security’s solvency than putting retirement further out of reach for the millions of Americans born between 1949 and 1964.
Under current law, the retirement age is set at 65.4. It will increase by two-tenths of a year annually for the next three years, when it reaches 66. It will then stay at 66 for 11 years, when it would again be raised in increments. It will reach 67 in 2027.
If the Commissioners propose raising the retirement age to help strengthen Social Security, then it’s likely that they’ll do this first by proposing an acceleration of the increases, in order to get it to 67 much sooner than 2027.
It’s true that Americans now enjoy longer life expectancies, but not by much. Life expectancy at age 65 is expected to rise by five-hundredths of a year annually. Thus, retirees will not make up for their lost years in retirement just by living longer.
The people who rely on Social Security the most will also suffer the most from retirement age hikes. Black men, for example, have an average life expectancy of just 15 years at age 65; white men have a life expectancy of 17 years. Raising the retirement age by just one year means a much larger benefit cut, proportionally, for black men than for white men.
It’s also bad news for blue collar workers, since they are often unable to continue physically intensive work well into their sixties. If they retired at age 62 today, they would keep just under 80 percent of their Social Security benefits. But for every year that the retirement age is increased, they will lose about five percent of those early retirement benefits if they leave the job at age 62.
There is another way to ensure Social Security’s solvency well beyond 2038. Payroll taxes are capped, so that now only the first $80,400 of income are subject to them, making the taxes highly regressive. We should raise that cap — or eliminate it — immediately.
Social Security is the most successful antipoverty tool our country has ever employed. For the average American, it provides 58 percent of retirement income. Without it, a staggering 39 percent of American seniors would live in poverty. Yet, by making it more inaccessible to the people who most rely on it, the President appears interested in dismantling it via his new commission.
Policymakers like President Bush, commission co-chairmen Daniel Patrick Moynihan, and AOL-Time Warner COO Richard Parsons wear glum faces and tell us that making tough choices is “what grown-ups sometimes have to do,” as Moynihan put it.
If working later in life means giving speeches and serving on commissions, then postponing the retirement age doesn’t sound so tough. But stiff-backed and stiff-kneed grown-ups might be forgiven for wanting to take the retirement package they were promised.
Christian Weller is a macro economist at the Economic Policy Institute.
[ POSTED TO VIEWPOINTS ON OCTOBER 23, 2001 ]