Slowing Down Social Security’s Retirement Age Increase
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Here’s a multiple-choice test question on the recent proposal from Alan Simpson and Erskine Bowles, co-chairs of the President’s Fiscal Responsibility Commission.
Complete the following sentence correctly. The Simpson-Bowles proposal would:
A) Sharply accelerate future increases in Social Security’s normal retirement age (NRA) relative to those already occurring in the near term under current law.
B) Slightly accelerate future retirement age increases relative to those already occurring in the near term under current law.
C) Continue at the same rate future retirement age increases already occurring in the near term under current law.
D)Slow down future retirement age increases relative to those already occurring in the near term under current law.
The correct answer is. . . D.
Surprised? Based solely on public commentary about the proposal, nearly anyone would be. AFL-CIO President Richard Trumka declared that the commission had told working Americans to “Drop Dead” and suggested that its draconian plan “would have killed” his coal miner father. Dr. Paul Krugman charged that the commission had been “hijacked” and asked rhetorically of the retirement age increase: “Is that reasonable? The answer is no. . .” And one news report after another has talked of “dramatic” changes the blueprint would make to Social Security.
The fact is that the Simpson-Bowles proposal would effect a slower future increase in the retirement age than that already occurring under current law. Do you remember the hue and cry when the Social Security retirement age rose by two months each year earlier in this last decade? Most likely not, because there was very little. Meanwhile, the rate of change proposed by Simpson and Bowles is actually four times slower than the aforementioned increase, and slower on average than the current-law increases to occur throughout the entire first quarter of the 21st century.
Let’s examine this in somewhat greater detail. Below is a graph of the proposed Simpson-Bowles NRA change, by worker birth year.
Under current law the NRA is rising by two years, phased in from those born in from 1937 to those born in 1960. Under Simpson-Bowles, a subsequent two-year increase in the NRA would be phased in from those born in 1961 to those born in 2007. This is thus a substantial deceleration in the currently ongoing rate of increase. For perspective, consider that Simpson-Bowles would affect the NRA for today’s 26-year-old worker by a grand total of one year.
The NRA, while important, is not the primary determinant of when individuals file for Social Security benefits. The majority of claimants file at early eligibility age (EEA), now 62. Simpson-Bowles would also increase this EEA. The chart below shows historic and proposed ages for earliest Social Security benefit claims (we’ll refer to male workers for purposes of illustration).
When Social Security was first established, benefits could not be claimed until age 65. The 1956 Social Security amendments allowed women to claim benefits as early as 62, an option extended to men in the 1961 program amendments. Under Simpson-Bowles, the earliest age at which workers could claim benefits would gradually drift up again to approach -- by 21st century’s end – only what it was originally under FDR. My four-year-old daughter would still be able to claim retirement benefits at an earlier age even than members of the generation that fought the Spanish-American war.
Is this “reasonable,” given changes in worker health and longevity since Teddy Roosevelt’s heyday, or should we avoid this adjustment and just hike my daughter’s taxes instead? Let’s remind ourselves of how longevity has changed over the last 70 years. For simplicity we’ll use “period life expectancy,” which only incorporates life expectancy changes to date rather than those anticipated over the rest of an individual’s lifetime.
Clearly we are generally living much longer than when Social Security’s retirement age of 65 was first established. This is one reason why the 1980-1 Social Security Commission (less famous than the Greenspan Commission) recommended that Social Security’s full eligibility age be raised to 68 by 2012. Yet Dr. Krugman recently referred to the Simpson-Bowles commission as “unserious people”, in part for even considering a retirement age increase.
We all have our own definitions of what constitutes “seriousness,” but one of mine is that when one cites factual evidence in support of a policy argument, the evidence should actually substantiate that policy argument. In his criticism, Dr. Krugman argued that “the proposal seemingly ignores a crucial point: while average life expectancy is indeed rising, it’s doing so mainly for high earners, precisely the people who need Social Security least. Life expectancy in the bottom half of the income distribution has barely inched up over the past three decades. So the Bowles-Simpson proposal is basically saying that janitors should be forced to work longer because these days corporate lawyers live to a ripe old age.”
A perceptive reader presumably does not need to have the logical fallacy here spelled out, but let’s do so anyway. Dr. Krugman’s statement conflates two very different concepts:
1)There are mortality differences between professions and income levels;
2)Social Security’s eligibility age for retirement benefits should not rise.
From a purely logical standpoint, the leap from #1 to #2 is a non sequitur. The fact that there are mortality differences does not by itself tell us what Social Security’s eligibility age should be. It doesn’t tell us whether it should be higher, lower or the same as it now is.
Moreover, it would clearly make little sense to argue that simply because there is someone in America who is suffering from physical debilitation, that the government should provide for subsidized retirement at age 62 for everyone. We arrive at sensible policies by determining what makes the most sense in the general case, and by providing for sufficient policy flexibility to address variations in individual experience.
The empirical evidence is clear that a physical inability to work is not the sole or even the primary determinant of workforce participation rates for those in their 60s. In 1955, 57% of American males aged 65-69 were in paid employment. By 1975, this had declined to 32%. This wasn’t because American workers in 1975 were suddenly breaking down where those in 1955 had been leading comfortable, sedentary lives. Instead this reflected a number of factors, including the increasing generosity of Social Security retirement benefits.
In any case, the Simpson-Bowles plan does not “ignore” the differential mortality issue. While it would gradually increase the retirement eligibility age in recognition of longer life spans, it would also provide physical laborers with greater flexibility in benefit claims with a new “phased retirement option” through which they could claim “half their benefits early and the other half at a later age.” The plan would furthermore direct the Social Security Administration to design a new method to provide for early retirement benefits for those in “physical labor jobs.”
Thinking through the policy issues requires recognition that the Social Security program contains different components: a disability insurance component for those physically incapable of paid employment, and an “old-age and survivors insurance” (OASI) program that provides benefits for individuals irrespective of their physical capacity to work. The Simpson-Bowles proposal to increase the eligibility age applies to the old-age program, not to the disability benefits for those physically unable to work.
Some may not realize that current Social Security law already facilitates a more lenient application of disability standards for physical laborers if the retirement age is increased. The Social Security Act is explicit that the age of the applicant is a factor in disability determinations. Social Security Administration regulations also specify that the disability criteria applying at “advanced age” (over 55) are more lenient that those applied to young workers (and those “closely approaching retirement age” more liberal still), resulting in a greater likelihood of benefit awards for workers toward the end of their careers.
As American society ages, the question of Social Security’s benefit eligibility ages reflects an important national value judgment. One possible choice is for us to translate our longer, healthier lifetimes solely into longer periods of paid retirement, resulting in substantially higher tax burdens on workers. A theoretical opposite choice would be to translate our longer, healthier lifetimes solely into longer working careers, lowering tax burdens per worker.
But while different individuals are entitled to make different judgments, no one is entitled to mischaracterize the judgments in the Simpson-Bowles proposal: their plan would still result in 21st century Americans spending a much greater share of their lives in retirement than they did in the 20th. The Simpson-Bowles proposal does not ignore -- but rather provides for -- circumstances facing physical laborers. And their proposal is for a slower retirement age increase than the one already on the books.
Charles Blahous serves as one of the two public trustees for the Social Security and Medicare programs. He is also the author of Social Security: The Unfinished Work.