The notion of raising the retirement age for Social Security, once politically taboo, is gaining traction. Senior fellow Richard Johnson argues in this commentary that increasing the full retirement age and the early eligibility age could help balance Social Security’s long-range budget and boost work incentives. But without adequate protections for people who can’t work—including a stronger disability safety net, an expanded Supplemental Security Income program, and more workforce development initiatives aimed at older workers—it could push up to a million seniors into poverty.
Spotlight on Poverty and Opportunity
Now that the President Obama’s National Commission on Fiscal Responsibility and Reform has delivered its recommendations, Spotlight on Poverty and Opportunity will present a diversity of voices to discuss how budgetary changes will (or should) affect low-income individuals. Contributions will cover the following topics—Economic Stability and Recovery, Social Security, Health Care, and Taxes and Tax Expenditures.
This commentary is the latest in the series, entitled “Opportunity and the Budget: Needs, Choices, and the Future.” It addresses the following question,
“Social Security: Does the Program Require Changes and How Will They Impact the Poor?”
The notion of raising the retirement age for Social Security, once politically taboo, is gaining traction. Last year, both the majority and minority leaders of the House of Representatives said it was worth considering. And in December, five of six senators on the National Commission on Fiscal Reform and Responsibility supported a plan that would slowly raise eligibility ages.
Done right, raising the retirement age could help balance Social Security’s long-range budget and boost work incentives. But done wrong – without adequate protections for people who can’t work – it could push up to a million older Americans into poverty.
Social Security needs to be fixed. It’s falling out of balance because as we live longer and have fewer children, the number of beneficiaries is growing faster than the number of workers paying Social Security taxes. We could raise taxes, but that might overwhelm workers. Or we could cut benefits, but that would impoverish many low-income seniors.
A better alternative is to shorten the retirement period by raising the retirement age. This approach cuts lifetime benefits and reduces program costs, but doesn’t necessarily shrink monthly benefits. It encourages people to work longer and earn more, easing pressures on both government and family budgets. Tax revenues increase when earnings rise, reducing the deficit and boosting funding for government programs.
More importantly, savings don’t have to go as far when the retirement period is shorter. Urban Institute research shows that, on average, working an additional year raises annual retirement income by nine percent.
Most policymakers who advocate raising the retirement age recommend changing the full retirement age, but leaving the early entitlement age untouched. Retirees can receive full benefits at the full retirement age, now 66 but set to increase to 67 in a dozen years. They can begin collecting reduced Social Security at the early entitlement age – now 62 – but they’ll collect only 75 percent of their full benefits each month. Once the retirement age reaches 67, early beneficiaries will get only 70 percent of full benefits.
The President’s Commission got it right by recommending increasing the early entitlement age in tandem with the full retirement age. If we slowly raise the early age to 64 and the full age to 69, for example, then we prevent workers from shortsightedly taking very early retirements and jeopardizing their old-age security. Those who retire at the earliest possible age would receive the same benefits as they would under today’s rules, and Social Security would save money because it wouldn’t pay benefits for so long.
But what about people who can’t work beyond age 62? True, health has improved at older ages, jobs are less physically demanding than they once were, and older adults have more education than earlier generations. Nonetheless, many Americans in their sixties are not healthy enough to work.
Access to Social Security retirement benefits at age 62 provides an important lifeline to people who can’t work or can’t find jobs. Fewer than half of adults age 55 to 64 with serious health problems receive any public disability benefits, and fewer than a third receive disability benefits from Social Security. Poverty rates increase in the run-up to retirement. But Social Security lifts many out of poverty, pushing rates down after 62.
That’s why we must reinforce protections for older Americans who can’t work and those who can’t find work before we raise the retirement age. We should reduce the long backlog of disability applications that force many adults with health problems to wait years for benefits. We should increase disability benefits, relax disability eligibility standards for those age 55 and older, and better integrate functional ability into the disability award decision so more older people who can’t work get help. We should extend unemployment benefits at age 55 and older because job searches last much longer at older ages. And we must devote more resources to retraining older workers.
We should also expand the federal Supplemental Security Income program, which provides monthly stipends to people with very limited incomes and assets. Benefits are too low to keep recipients out of poverty, and only blind or disabled adults or those age 65 and older are eligible. We should increase benefits and make them available at age 62 regardless of health status. We should also relax the program’s asset limits, which restrict benefits to couples with less than $3,000 in financial assets and single adults with less than $2,000.
Americans have been redefining old age for years. Seniors are now more active than ever before. But Social Security hasn’t kept up.
If we don’t raise the retirement ages and current work patterns continue, men will average 20 years in retirement by 2040 and women will average 22 years, nearly a third of an adult life. That’s more than we can afford.
But we also must bolster our disability and employment programs so that those who can’t work aren’t left behind.
Richard W. Johnson is a senior fellow at the Urban Institute and the director of its Program on Retirement Policy.