Commentary | Retirement

Raising the retirement age not necessary to save Social Security

This piece was originally published in U.S. News & World Report

Raising the retirement age as a way of “saving Social Security” is like the general’s line in the Vietnam War: “We have to bomb the village to save it.”

No, we don’t have to cut benefits as a way to save them. And that’s all that raising the retirement age does: It cuts benefits for all retirees, no matter the age they choose to retire. The last increase, from age 65 to age 67, cut benefits for an average retiree by 13 percent, a loss of more than $28,000 over the course of a typical retirement. And that increase hasn’t even fully taken effect yet!

It’s not immediately obvious, but raising the retirement age to 68 would cut benefits even for someone who waited until 69 to retire, because today, you get a bonus for waiting until 68 or 69. But when the retirement age increases, the bonus disappears for the 68-year-old and is cut in half for the 69-year-old.

And the fact of the matter is that benefits are already less than modest. In fact, the average retiree’s benefit is only $14,000—less than the minimum wage. Millions of retirees now and in the future will have no income beyond Social Security, so they can’t afford any kind of benefit cut. Three and a half million seniors are already below the poverty level, even with Social Security.

Why are we even debating Social Security cuts, instead of benefit improvements? One reason is that right-wing ideologues hate Social Security and have been trying to destroy it or privatize it for decades. They want benefit cuts because they see the program as socialism (or as former Republican Sen. Alan Simpson, who cochairs President Obama’s deficit commission, put it, “a milk cow with 310 million tits”). Social Security does have a long-term financing problem, but the cause is growing income inequality, not the fact that Americans are living longer. Congress anticipated the baby boom’s retirement back in 1983, raised the retirement age, increased taxes, and collected a trust fund that is already more than $2 trillion and will eventually peak at $4.2 trillion.

What Congress didn’t anticipate was that the salaries of high-income people would rise sharply while wages for most Americans would stagnate. The limits on taxable income were set in a way that allows more and more income of the well-off to go untaxed. Most people don’t know that someone making $300,000 or even $30 million a year pays no more in Social Security taxes than someone earning roughly $107,000. In 1983, 90 percent of wage and salary income was taxed, but today it’s less than 84 percent. That’s a huge windfall for the rich and a serious shortfall for Social Security.

What’s indisputable is that Social Security does not and cannot contribute to the nation’s long-term debt, so deficits are not a reason to raise the retirement age or make any other benefit cut. The program cannot borrow, so it only pays benefits that have been raised through dedicated taxes or interest earned from the trust fund’s bonds. If, in 2037, as is expected, the trust fund is depleted, benefits will be reduced automatically to ensure that no deficit is created.

Americans already work longer than they did 40 years ago. And while it’s true that we’re living longer, the gains in life expectancy have been uneven. Higher-income men are living 5½ years longer than in 1982, but lower-income men are living only 1½ years more. And lower-income women have seen their life expectancy decline.

So the right answer to the program’s financing problem isn’t to make people in physically demanding jobs work until they drop. It’s to make the rich pay a fair share of the taxes needed to fund full benefits. If the rich paid taxes on the same share of national income as they did in 1983, 40 percent of the funding shortfall would disappear. (If it was good enough for Ronald Reagan, how can they complain?) But they should pay more. Most Americans want to see the cap on taxable income lifted entirely. If both employers and employees paid the 6.2 percent Social Security tax on the entire salary of employees earning more than $106,800, the entire funding shortfall would be eliminated.

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