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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.

By Ezra Klein  |  September 7, 2010; 10:36 AM ET
Categories:  Social Security  
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Next: 30 options for reforming Social Security -- and how much they'll save

Comments

Just last week you were arguing against Cap gains having a tax break against dividends because it wasn't the original intent. If we are going by original intent, then Soc Security is being used completely wrong.

The bottom line is that we are still using a system that pegs life expectancy @ a number established in the 1930s. People live longer now, that should allow us, if not force us to up the age.

Posted by: Natstural | September 7, 2010 10:51 AM | Report abuse

Maybe if more senators and congresspersons were "laid off" by age 62, there might be more understanding here. The fact is, in today's Senate, more than half (56 to be exact) of the 100 senators are aged 62 or older. (21 of these are between the ages of 72 and 86.) Of the 44 senators younger than 62, only nine of them are younger than 50.

Very few of us get to work until the age of 86. For those in demanding physical occupations, retirement at an early age is desirable or even necessary. For others (professors, journalists, business executives), working into one's 70s is common or desirable ... and possible. Many people want to work as long as they can both for financial, social, and psychological reasons. The fact is, people don't always get to choose when they retire, either because of rules or discrimination. Choice of retirement age shouldn't come with a penalty when in many cases, it is beyond people's control.

Most of us who are 60-ish don't think of ourselves as old. We feel pretty vital. So this talk of "62" is kind of depressing. I've been struck lately by what the 1930s and 1940s version of old looked like, Hollywood-style. I've been watching a lot of old movies on Turner, and have been increasingly struck by the fact that the 70-year-old depicted in the movies then looked like the 90-year-old of today--frail, white-haired, haggard. While I oppose raising the retirement age for Social Security, I'm wondering if politicians believe that raising the age actually appeals to the vanity of people approaching their 60s, and would additionally help to retain them in jobs, since employers wouldn't think of them as being quite so eligible for retirement. Thinking out loud here.

Posted by: JJenkins2 | September 7, 2010 11:23 AM | Report abuse

Nice piece, Ezra. Thanks for pointing out the fundamental dishonesty of this conversation.

And by the way, Natstural, the people living longer? They're the wealthy classes, the ones who can afford good health care. Let's not get distracted by that shiny object.

Posted by: uberblonde1 | September 7, 2010 11:23 AM | Report abuse

Natstural, we don't have to apply the same basis in every decision. The fact that exemptions for cap gains are being used in a way not originally envisioned may be a good argument for changing the way we handle cap gains while deviating from what people thought in the 30s with regards to retirement might be perfectly reasonable. We are living longer, but we're also a lot richer. Something like Social Security shouldn't be an abstract discussion of what people intended in the 30s. If we can make changes to the way we fund the program such that it's sustainable even though we live longer, why shouldn't we just have nicer later years?

Posted by: MosBen | September 7, 2010 11:54 AM | Report abuse

About a year ago, the WSJ ran a report regarding Social Security benefit resetting (see http://online.wsj.com/article/SB124269847249033199.html, which links to http://www.socialsecurity.gov/retire2/withdrawal.htm). The ability to "reset" benefits is an increasingly exploited loophole: it's important to understand how the loophole works and how it is currently exploited.

Without doubt, some structural changes to the Social Security System and related welfare programs is needed; however, academic analysis tends to overlook many opportunities for ingenious abuse. hat I'd like to see is a thoughtful explanation of precisely why the program needs to be national: why would multiple smaller programs be doomed to fail?

Posted by: rmgregory | September 7, 2010 12:41 PM | Report abuse

Man, I don't even know why we're talking about this. Does the Democratic caucus have the ability to sell benefit cuts -- by any name -- to Democratic voters?

I'm willing to think about benefit cuts in an abstract technocratic sense (many liberals won't even go there). But I have little to no confidence that such cuts will be met with any real concessions by the GOP. Democratic pols have to know that if they make such unilateral cuts, they will be punished.

So it seems like this, like Obama's big new spending plan, is just a "what do we talk about till the elections?" time suck...

Posted by: NS12345 | September 7, 2010 12:51 PM | Report abuse

We could probably solve a lot of the social problems we have today if people knew they'd have to raise children that would grow up to be both capable of and willing to support them in their old age. :)

Posted by: bgmma50 | September 7, 2010 1:28 PM | Report abuse

Since there are limited number of jobs to go around right now- there are 8 million people looking for work and the manufacturing or other jobs are not likely to come back any time soon, I think we should actually decrease the age at which one can retire so that younger folks can take those jobs. Thus reducing the retirement age with full benefits may be a good option (this, in conjunction with addition of more wealthy working Americans to participate in payroll taxes). This may be the stimulus one needs to create' more jobs.

Posted by: ns3k | September 7, 2010 1:31 PM | Report abuse

A lot of the different approaches to making SS solvent longterm have been bantered about for years by the actuaries, and there's actually a pretty good archive of their various analyses at www.actuary.org if anyone is interested. They even have a game where you can try to "fix" SS using different combinations of tax increases and benefit cuts.

My own bone to chew is to means test the spousal/survivor benefits.

Posted by: Beagle1 | September 7, 2010 6:34 PM | Report abuse

This is how it happens. If you ask young people if they expect to get a social security benefit when they retire they mainly say "no". I doubt that the social security benefit will disappear over night, but rather it will be chipped away at bit by bit until there's nothing left.

If people are going to draw benefits for a longer period of time, I don't see what's wrong with asking them to pay more up front. It would help raise our abysmal national savings rate.

Posted by: eclectic-economist | September 8, 2010 11:20 AM | Report abuse

"If we're just talking about cutting benefits, however, we should have that conversation honestly."

Yes, let's have it honestly. That would require upfront acknowledgement of that which is rarely acknowledged, namely that Social Security benefits are very progressive. Those the very lowest earners get a rate of return on FICA >4x that of those whose earnings approach or surpass the earnings cap. It is regularly said that SS is "regressive," but it is anything but when one looks at how much is paid out as a % of contributions over the years. If the earnings cap is raised more than the formula calls for, it will be even more progressive. Perhaps it should be more progressive, or we should raise the age for full benefits, or make other changes to tilt SS in one direction or another, but yes, let the conversation be an "honest" one, which requires being informed as to all the relevant facts.

Posted by: 2ndopinion | September 8, 2010 3:59 PM | Report abuse

Your premise - that raising the age of eligibility for full benefits amounts to cutting benefits - is just wrong. Benefits are made more generous every year. Gradually raising the age of full eligibility will reduce the increases paid to retirees. As we live longer, we are collecting more and more from Social Security. A higher retirement age is a reasonable way to bring the system back into balance.

Posted by: moronmoron | September 9, 2010 10:17 AM | Report abuse

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