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Raising the retirement age is a bad idea

PolicyBasics_SocSec-TopTen-f2.jpg

When people talk about "raising the retirement age," they normally mean raising the "full-retirement age." That means the age where you get what Social Security calls "full benefits." Right now, it's about 66. But most people don't retire at 66. They retire at 62 or 63 -- that is to say, they retire as soon as they're eligible, even if it means getting less in benefits. That reveals an important preference: So much as pundits and elites think it's easy and natural for people to work later into life, most people don't actually agree. They retire as soon as possible.

If you raise the full-retirement age to 70, you'll probably still see people retiring at 62 or 63. They'll just get less in benefits. In that way, raising the retirement age is another way of saying "cutting benefits."

Andrew Biggs has proposed doing something different: He'd raise the "early-retirement age" -- that is, the age at which you can first retire and begin collecting benefits -- from 62 to 65. You couldn't retire at 62 and get less. Benefits would begin only at 65. This will improve the system's finances, he says, and also mean larger annual benefits when people do retire. "The evidence indicates that most Americans could work longer and would benefit from doing so," he writes. "This strikes me as sensible," says Andrew Sullivan.

Though I agree with Sullivan that this is, at least, a serious idea for reducing the deficit, count me out. The words "would benefit from doing so" are doing some heavy lifting here, and in a way even I find worryingly paternalistic. Biggs quotes evidence showing that health has improved among elderly Americans, and jobs have grown less physically demanding, since Social Security was founded. That's true, but it's also true that America is much richer than it once was. Adjusting for inflation, our gross domestic product in 1935 was $865 billion. In 2009, it was more than $12 trillion.

Leisure time at the end of life is something we can buy. The question is whether we want it. Elites don't, and so raising the retirement age is very popular among them. They -- or maybe I should say we -- want to work until 70, and 75, and 85. It's a painless reform for us, and so we've convinced ourselves it's a painless reform for most people. Conversely, we don't want to raise taxes on ourselves, and so you don't hear much about lifting the cap on the payroll tax that funds Social Security. But, funnily enough, when you pose the question to Americans, they see it differently: They don't like taxes, but benefit cuts are much less popular. And notice that that poll question doesn't even note that the relevant tax would mainly hit wealthier Americans.

So much as I don't like the idea of raising the full-retirement age and cutting benefits for people retiring -- as you can see in the chart atop this post, benefits aren't particularly generous even now -- I'm much more hostile to the idea of raising the early-retirement age. That's particularly true given that elite preferences on this question are diametrically opposed to the revealed preferences of Americans. People who like their jobs and make a lot of money working as pundits and legislators and think-tank experts have a special credibility on raising taxes on people who make more than average Americans, but it's the average American working a job she may or may not like who's credible on when most Americans want to retire, and the answer to that question seems to be "as early as possible." We should take that preference seriously.

You might say, of course, that we can't afford to take that preference seriously. Sorry, but that's just not true. For one thing, we could close the Social Security gap by applying payroll taxes to all income, rather than just to the first $106,000. Oddly, however, the "raise taxes on wealthy people with good jobs" has less traction among wealthy people with good jobs than "make average people work longer at jobs they want to retire from."

For another, the Social Security trust fund is an accounting fiction. Liberals think it's a sacrosanct bargain that's protected by the program, but I don't see much evidence of it. And it creates the problematic impression that Social Security must be internally solvent. Plenty of programs in government don't pay for themselves and are instead subsidized by revenues or cuts elsewhere. Education, for instance. or defense. And there are dozens of things I'd cut and dozens of taxes I'd impose that could partly or fully close the 0.7 percent of GDP that Social Security needs to become fully solvent. To name but a few, the mortgage-interest deduction, a carbon tax, the exclusion for employer-sponsored health care, the military budget, farm subsidies, Medicare, a VAT and the Bush tax cuts for income over $250,000.

Graph credit: CBPP.

By Ezra Klein  | October 29, 2010; 5:31 PM ET
Categories:  Social Security  
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Comments

Or you could just have the middle and upper classes pay for their own retirement. Then again, that would give people the freedom to opt out of the Ponzi scheme we call "Social Security" which would make liberals wet their trousers and pantsuits.

Posted by: kingstu01 | October 29, 2010 6:55 PM | Report abuse

Ezra,

I'm fortunate to be one of those wealthy people who likes his work, but I'd gladly pay more in taxes.

Nonetheless, there is another problem with people retiring early, as voters they can lose touch with what it's like for people working (or wanting to work) today. Look at all the elderly Tea Party members. Do you really think so many of them would be wanting to slash government for everyone not on Social Security and Medicare if they had to have a job? When they have to get, and keep, a job, they can see that hard working people can be long-term unemployed too, and it's a lot harder than it was when they were younger when there was a lot more govenrment action to protect people and keep them employed.

There's definitely a cost to our country when you have elderly tea partiers who have lost touch with reality, and could use a good dose of it.

That said you need a lot of anti-age work discrimination laws, mandated flexible, and optional shorter hours, mandated more sick days, and so on.

Posted by: RichardHSerlin | October 29, 2010 6:58 PM | Report abuse

Ezra,

What if we raised both the early and full retirement ages to 65 and 70, respectively, but then created a provision that stated something along these lines: for every 10 years a worker worked a blue-collar job, he or she could retire one year earlier. For example, someone who worked 40 years, say as a plumber, could retire early at 61 or at 66 to receive full benefits. Not only would this help to reduce the Social Security deficit, but it would also result in a more progressive distribution of benefits.

Posted by: sean_w | October 30, 2010 12:18 AM | Report abuse

"That said you need a lot of anti-age work discrimination laws, mandated flexible, and optional shorter hours, mandated more sick days, and so on."

If older workers are going to need all those special accomodations, why is it such a good idea to keep them on the job any longer?

The issue of 'wearing out' doesn't affect only blue collar workers. The heaviest lifting we did at my office was a copy of the Code of Federal Regulations, but staring around age 60, it became pretty obvious that people were losing the mental agility needed to deal with complex questions, and by 65 or so, they were pretty much done for. In the cases where someone decided to hang on til 70, the last few years of their tenure was marked by constant grumbling about 'when is the old coot going to finally leave?' The myth of the wise, productive elder is, I'm afraid, pretty much a myth.

Posted by: guesswhosue | October 30, 2010 1:14 AM | Report abuse

"Leisure time at the end of life is something we can buy. The question is whether we want it."

you mean the question is whether people want leisure time that they buy with other people's money, right?

Posted by: stantheman21 | October 30, 2010 2:16 AM | Report abuse

so your solution probably comes down to wealth transfers? you could just say that you want the better off to completely subsidize the welfare of the elderly less off, but that would kinda be betraying the whole idea of SS, right (which was a partial supplemental plan to cure adverse selection issues in annuities markets)?

however, nice to see you advocating a unified budget approach; surely you would then advocate a partial privatization to end the unified budget problems right? wait, somehow i doubt this will come out...

more predictable, day by day

Posted by: stantheman21 | October 30, 2010 2:25 AM | Report abuse

Ezra, for most of the last decade — and longer — there has been another reason why people are taking early Social Security. Not that they want to retire early, but that they have been forced to by age discrimination, the willful winnowing out of older workers as too expensive in favor of younger, cheaper workers.

In my case, advertising, this has been going on since the early '90s. I started as a copywriter at age 20 in a business that then still favored older workers nearing retirement as the means for training younger workers just coming into the business. Even in the late '60s one could envision a full career at the same company.

But over the next three decades, advertising — like much of American business — decided that they no longer wanted to train new workers, but expected them to be taught in school or by other companies. Formal Inhouse training programs (of which I was a beneficiary) were dismantled. Then older ad men, with higher salaries, were cut, thus eliminating the informal means by which the young learned from the old. There's no one in advertising these days over 50 who doesn't own the company and have their name on the front door. We're considered old, slow and expensive by comparison to the new recruits in their 20s.

For me that meant I lost the last 15 years of a projected 45-year career. I've not had an agency job since the mid-'90s. At a conservative estimate, that's about a million dollars in earnings that I had planned on that didn't happen. Given the gypsy existence advertising turned into, especially for copywriters and art directors, there was little opportunity to save and invest because there was also often long periods between jobs that ate away savings.

In those intervening years I've had my own one-man agency (a.k.a. freelance) rise and fall with economy three times. At age 60 I found only one part-time creative job that paid $18.50 an hour— at a newspaper. They laid me off after two and a half years, as part of continuing downsizing that saw half of a 24-person, full-time department laid off, many of whom had been there decades. The work was outsourced to India and Alabama.

So, when the option to take early Social Security came around, I — like many of my contemporaries — swallowed my pride and took a reduced benefit. It was better than nothing.

The tidal wave of boomers heading for Social Security, especially early opters like me, are not going there willingly. Rather than a supplement to retirement savings, it's our only hope. I mean, who's going to hire a 64-year-old trainee?

Posted by: tomcammarata | October 30, 2010 4:32 AM | Report abuse

guesswhosue:

One of the greatest mathematicians in history, Euler, did his best work in his 70s right up until his death at 76, but he kept non-stop extremely mentally active from childhood. This depends greatly on individual genetics, how well a person takes care of himself, and mental exercise.

Nonetheless, for a large scale program, we're interested in the average, the 60th percentile, the 70th percentile, and so on.

The question takes a lot of analysis. Suppose a person earning $100K/yr is now half as productive. They can still create $50K/yr in wealth for society -- not a trivial number. But are they instead at the point where they just can't do their job well and are an impediment to the productivity of others? So any such program should have subtle regulation and exceptions -- good luck getting that by Republicans with a filibuster they always use.

Your experience, though, does definitely color your outlook on this. My grandparents were very smart in their 80s, and at a university you talk to very smart people in their 60s and 70s.

Posted by: RichardHSerlin | October 30, 2010 3:53 PM | Report abuse

Richard,

not everyone in the "tea party" is elderly. That's another liberal myth put out there. Don't buy into it.


As far as the graph I'm kind of stunned Ezra put it out there. This basically shows that those that pay the least get a 55% return, those in the medium get about 45% those in the high get about 33% and those in the high get about 25% or so.


So since I started working at age 22 when I reach my cap (SS sends me the figures annually like everyone else) what's my incentive to continue putting into the SS system???

Posted by: visionbrkr | October 30, 2010 5:19 PM | Report abuse

visionbrkr,

You can't tell return from the graph. It depends not just on your income, but the percentage of your income that you had to pay in, which you can't see from the graph, and which has changed over time. Generally, though, for such a safe, insurance type, investment, the return is very good for people of any age. Remember the risk return tradeoff (or google it) -- Social Security is like insurance, it insures you against destitution even if you live to 100+, and even if your career and investments hit very bad luck -- or honest hard working mistakes. The governemnt can be a powerful insurer, becasue it's more stable and trustworthy by far than any private company, and it doesn't have a profit incentive to use asymmetric information, which can be huge in insurance and investments, to deceive customers in a devastating way, leaving them with little or no coverage, protection, or return when they need it.

Remember, the good old days before Social Security where ones of rampant destitution for seniors. They were by far the largest group in poverty. It's not like the pure free market wasn't tried here for centuries.

Posted by: RichardHSerlin | October 30, 2010 7:06 PM | Report abuse

In any case, the whole issue of elderly workers is complicated and nuanced.

As I've said, humans aren't wheat. If your productivity drops by 70% from 45 to 62, it's not like employers will just offer you 70% less money and the market will clear quickly -- They know that even if you accept, you'll likely be a very disgruntled toxic employee.

With regard to guesswhose, I bet with a lot of those poor workers 60-70, it might have just been at least largely due to tiredness. If this is a law office, they might be exhausted working 60+ hours per week, but give them just 30 hours well rested and they might do quality work. But again, humans aren't wheat -- employers can't just say, were going to cut your hours in half, and since due to synergies that cuts your productivity more than in half, so we're going to cut your pay to 70% less than what you were making five or ten years ago -- even though people have been long conditioned to think pay should always rise or at least stay the same with age.

Posted by: RichardHSerlin | October 30, 2010 7:18 PM | Report abuse

How many are in good health? The issue is if you are in good health then work but if your not..you have no choice. Plus what kind of work do you do is a factor too. I worked many times around the clock at 51 years of age, I had triple by-pass and was back to work in 2 months working around the clock. At 61, I had full blown heart attack that left me an invalid. I went on disability as i had disability insurance on my job+ was eligible for my pension + sizable savings. Then when my wife became 63 her asthma took her down. She was in an out of the hospital till they got her stabilized. Back when I had my heart surgery I had good health care but that is before the health care went bonkers. Now they don't want to pay if your sick. So it don't matter how much money you have in your nest egg which I had good portion--health care wants it. Nor do they want to pay for your prescription medications.
Then I got to hear republicans shoot down health care for the people which after 40 years I am no longer a republican and never will be again.

The problem is when your are in your 20's 30's 40's this is the prime and best time of your life and these people vote and have no clue about these issues. You need Social Security when you get older..you need a sizable nest egg cause you do not live on social security alone. Younger people don't get that. You are still taxed, you are still paying out for health care insurance--medicare isn't free either. When I was young I didn't need medicine and doctors and hospitals.

Here is the best part---"NO ONE" wants old people in the work place!!! All jobs are not sitting at a desk. I was hopping planes and traveling around the country working around the clock. All of us watch all presidents take office and age fast but they only do that job for 8 years the most--try your lifetime working all the time and see what it does to the body and where your at at 65.

Posted by: mac7 | October 31, 2010 9:13 AM | Report abuse

Richard,

I guess by your not taking me to task on the statement about the tea party you've realized you were wrong incinuating that they were mainly elderly. I don't see that when I look at them. I see a lot of working mother's here in NJ who like what they have to say. now we'll see how they act when they're in Congress. I think the same thing will happen as happened with Obama. Progressives thought he was one of them and then he became more middle of the road and disilussioned the progressives. I think the same would happen to the Sharron Angle's, Rand Paul's etc. Not to mention the fact that they'll have little power as a single senator or two and a freshman one at that.

That being said your disdain for private business is understandable coming from someone in academia. The problem with your faulty logic is that government run pension programs (of which SS is basically one) are proving unsustainable so they're having to be revamped. The weight and burden of them is unsustainable. The trillions of unfunded liabilities within the pension systems across the country prove how wrong you are. Living longer means that you can't make the promises that you used to make whether you're private or government run. That's why private moved from pensions to 401k's years ago. Its time government followed suit.

Posted by: visionbrkr | October 31, 2010 9:58 AM | Report abuse

RichardHSerlin says: "Generally, though, for such a safe, insurance type, investment, the return is very good for people of any age."

umm, the return, risk adjusted, is actually terrible for lots of people, especially the young.

for example: a two earner couple born in 1984 earning an average of 100k a year over the course of their pay-in gets an average estimated rate of return of .64%.

terrible.

being forced into this "savings system" is really just a way to mask welfare transfers to the old and poor, as it's not like you capture net benefits of the gov's ability to weed out adverse selection issues in an annuities market.

(for example, you could prob easily get inflation protected cds (FDIC insured) for much better rates), not to mention the returns with a targeted investment fund which capture the benefits of diversification).

Posted by: stantheman21 | October 31, 2010 9:14 PM | Report abuse

@richardserlin,

The governemnt can be a powerful insurer, becasue it's more stable and trustworthy by far than any private company.


Did you really mean this? The government is TRUSTWORTHY when it comes to safeguarding SS and not using it for other projects? Hasn't the government been stealing from SS for years in a way that makes the Enron scandal look small in nature? You may want to reconsider that argument because its full of holes.

Posted by: visionbrkr | November 1, 2010 7:46 AM | Report abuse

A good number of those people who prefer to retire at 62-63 would 'retire' at 40 if they could get enough "benefit". I think this is confirmed by a goodly number of persons I know who have been out of work through no fault of their own (I am talking about before the current crisis), and collected unemployment benefit. Many of them did not seriously start looking for a job until their unemployment benefit is used up. At least as far as a pension is concerned, social security is not a "benefit" It is based on life time contributions by the person, minus the social insurance component, and his/her age at time of retirement. Let people retire at whatever age they want to, say after 50 and adjust their social security pension accordingly. That way each person could decide what is in their best economic interest to do, as they perceive it.

Posted by: jfgerald | November 1, 2010 8:16 AM | Report abuse

A good number of those people who prefer to retire at 62-63 would 'retire' at 40 if they could get enough "benefit". I think this is confirmed by a goodly number of persons I know who have been out of work through no fault of their own (I am talking about before the current crisis), and collected unemployment benefit. Many of them did not seriously start looking for a job until their unemployment benefit is used up. At least as far as a pension is concerned, social security is not a "benefit" It is based on life time contributions by the person, minus the social insurance component, and his/her age at time of retirement. Let people retire at whatever age they want to, say after 50 and adjust their social security pension accordingly. That way each person could decide what is in their best economic interest to do, as they perceive it.

Posted by: jfgerald | November 1, 2010 8:22 AM | Report abuse

As our life expectancy grows, raising the early retirement age makes sense. Early retirement age, full retirement age, makes no difference; it should be raised. Another idea, social security taxing full income vice stopping at $106,000 (not raising the % tax). A good consideration.

Posted by: pielusztcontractor | November 1, 2010 9:00 AM | Report abuse

In today's economy,and you own your own business, there is no such word as "Retirement".
Retirement is a Public worker/Union term..

Posted by: yokohlman | November 1, 2010 10:47 AM | Report abuse

I've never heard a coherent argument for keeping the retirement age so low, so I read this column with interest. So far as I can tell, Ezra's argument is, "People wouldn't like it, and the fact that we can't afford it is irrelevant." So even after reading this column, I'm proud to say, I still haven't heard a coherent argument for keeping the retirement age artificially low.

Posted by: smithkl42 | November 1, 2010 11:04 AM | Report abuse

Social Security was designed for people with shorter lifespans at retirement. Medicare was designed for an era where you couldn't do all that much medically for old people.

These programs were meant to consume a few percent of GDP, not 20-30% or more. But that is where the demographic wave is pushing us, and it is not affordable.

Posted by: DavidMerkel | November 1, 2010 11:51 AM | Report abuse

Ezra, please read: Rather than talking about whether this reform would be financially sound, as Sullivan seems to think, your main point of opposition to it is that "elite preferences on this question are diametrically opposed to the revealed preferences of Americans." I couldn't help but see a parallel to Healthcare reform. The "actual" pros/cons of Healthcare reform not withstanding, American's, when polled, believed in the majority, that the way in which Obama and the Democratic Party were to enact Healthcare reform was something they simply did not want to happen. Many on the "left/elite" came out and proclaimed "If only they had the proper evidence at their disposal, if only they could see the issue with non-ideological clarity, then they would support it.

Who is to say that this issue is not similar in that regard - that for a country in bad economic times reforms like these are ones that are simply required. Maybe it is the case that many Americans do not see the longterm macro-economic implications of this policy debate. Maybe it is the case that many Americans are against pushing the retirement age back because they don't have access to the nitty-gritty financial logic behind it. Just because the policy affects someone does not mean that their opinion of it is the most logical or truthful. Their proximity to the implications of the debate may in fact lead to especially faulty or emotionally clouded thinking. This of course also works in the other direction as well, that if the policy does not affect those who create it, it's implications could be heinous - some sort of middle ground has to be reached.

If at all possible, I would be very curious to see your response to this.

Posted by: cdzrom | November 1, 2010 6:32 PM | Report abuse

I'm really surprised at the number of people that have no idea what Social Security really is. It's an insurance program folks. It covers the disabled and orphans too.

It has worked very well for 75 yrs. with only a little tweeking back in 1983 thanks to Reagan. They have admin costs of about 1%. Is there any company that can say that? If so, please name it.

Someone says that they never heard a coherent argument for keeping the retirement age "so" low. How about the fact that many people work at jobs that have taken a toll on their bodies. Who cuts your hair? Who serves you coffee? Who works on your cars? Physical labor takes a toll. Whenever I see someone casually saying that we should raise the retirement age, I know that person has probably never had to do any hard labor for any length of time.

And Mr. Merkle, you have not done your homework. Social Security was NOT designed for people with shorter lifespans. The SS website has the history, you should go take a look. But here is what SS has to say about it.

"men attaining 65 in 1990 can expect to live for 15.3 years compared to 12.7 years for men attaining 65 back in 1940. "

http://www.ssa.gov/history/lifeexpect.html

I wrote this to Sullivan yesterday and rather then answer my post, he answered yours. But I wasn't as polite as you.

Posted by: Kewalo | November 1, 2010 9:36 PM | Report abuse

Raising the retirement age is a lazy and terrible idea that would force people to work well into their 60's when people are literally broken down by their body and many with their mind

To think of someone at the age of 69 working to get benefits is shocking

Posted by: Bious | November 3, 2010 1:38 PM | Report abuse

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