Don't cut Social Security, cont'd
One point I didn't get into my column as clearly as I would've liked is the degree to which "raising the retirement age" is a way of saying "cutting Social Security benefits." So let's do it here.
There are two retirement ages in Social Security: The first is the age at which you're eligible to begin receiving benefits -- albeit in reduced form. Right now, that's 62, and that's also when most people start the clock. The second is the "full retirement age," which is the age to retire if you want full annual benefits, or at least what Social Security considers to be full benefits. That's currently 66. When we talk about "raising the retirement age," we aren't talking about raising the age at which you can begin receiving Social Security. We're talking about raising the age at which you can claim full benefits. Hence, "raising the retirement age" doesn't mean people can't retire and collect Social Security at age 62 -- it just means they get less if they do.
In other words, this is a benefits cut. Social Security pays you a certain amount of money until you die. The longer you live, the more you get. Cutting a year off that estimated payout -- which also means that Social Security rewrites the formula for taking early benefits to make sure people retiring early also get less money -- means less Social Security in total. As Brookings's Henry Aaron explains, it's "simply an across-the-board benefit cut—roughly 6.66 percent for each year the ‘normal’ retirement age is increased. Thus, raising the’ full benefits’ age by, say, three years is nothing more or less than an across the board benefit cut of 20 percent."
So why don't we call it a benefits cut? Well, cutting benefits is really unpopular. "Raising the retirement age" is also really unpopular, but it at least sounds a bit better and gets the conversation focused on the longevity of Americans rather than the generosity of Social Security and the adequacy of most people's retirement savings. But that's just confusing people: If we want to have a conversation about encouraging people to work later into life, we can have that conversation, but it includes things beyond Social Security (like measures to deal with age discrimination). If we're just talking about cutting benefits, however, we should have that conversation honestly.
September 7, 2010; 10:36 AM ET
Categories: Social Security
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