Amid a rising national debt and fears about the fiscal stability of Social Security, the idea of raising the retirement age to balance the program’s books is garnering more attention. But doing so would be a heavy lift politically.
The projected reserves of the combined Social Security trust fund and the Disability Insurance Trust Fund will become exhausted in 2034. Some economists and lawmakers are calling for big changes to the old-age social insurance program created in 1935 by Franklin Roosevelt and a Democratic Congress. Proposed Social Security tweaks include raising the retirement age from 67 to effectively limit the payout pool to older individuals.
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It would put the U.S. on a better fiscal footing by reducing the budget deficit and national debt, said Charles Blahous, a senior economic adviser to former President George W. Bush and a public trustee of Social Security and Medicare during President Barack Obama’s administration.
Raising the retirement age would also improve Social Security’s long-term finances to ensure seniors in the future can access all the money they’ve paid into the program through their working careers, Blahous, a senior research strategist at George Mason University’s Mercatus Center, told the Washington Examiner.
“It’s one of the most important things we can do not just from a fiscal perspective but from a retirement security perspective,” Blahous said.
Social Security’s looming insolvency is driven, in part, by declining birthrates. While life expectancy has increased since Social Security’s creation in the New Deal era, the ratio of workers to beneficiaries has declined, further putting pressure on the system.
“We have a system that doesn’t adjust for changing demographics,” Blahous said.
Raising the Retirement Age
There are two ages when people can start claiming Social Security benefits they’ve earned through diverted payroll taxes over the course of their careers — the early eligibility age and the full retirement age. Early eligibility is at age 62, with the full retirement age set at 67. Or age 66 for those born before 1955, which gradually increases to 67 for those born up to 1960.
But even raising the retirement age to, say, 69, wouldn’t fix Social Security’s funding problems, said Andrew G. Biggs, a senior fellow at the American Enterprise Institute, where he studies Social Security reform, state and local government pensions, and public sector pay and benefits. That age hike would fix a bit under one-fifth of Social Security’s long-term funding gap.
“It gives you some perspective of sort of how big Social Security’s funding gap is since a lot of people would consider a two-year increase in the retirement age a lot,” Biggs told the Washington Examiner.
Now, people can essentially retire at any age between 62 and 67, with those retiring earlier getting lower benefits, Biggs said.
“However, if Social Security says the retirement age is 65, 66, or 67, a lot of people are going to take that as guidance on when they should retire,” he said. “So if you were to keep raising the retirement age and raise it up from 67 to 69, you’re going to get some people who say, ‘Look, that’s the right time to retire, that’s when I’m going to do it.’”
For the macroeconomy, more delayed retirements would likely be a positive thing. It would mean people working longer and earning more, which means more tax revenue — something that would be good for the federal budget and keeping Social Security afloat. People would probably end up saving more for retirement, Biggs added.
But there are also cons to raising the retirement age.
One thing critics point to is that while life expectancy has increased overall, the increases in longevity and lifespan haven’t been evenly distributed, according to Biggs.
“Essentially rich people are living much longer than they used to, poor people are generally living around the same,” he said. So the argument from the poorer people would be they are being forced to subsidize a problem they didn’t cause, Biggs added.
Nor do the politics of changes to Social Security bode well for immediate action. Forty years ago, it took a bipartisan agreement between President Ronald Reagan and Democratic House Speaker Tip O’Neill to enact changes at a time when the program also faced funding shortages. The 1983 law, among other things, made one-half of the value of an individual’s Social Security benefit potentially taxable income, opening up a new revenue source to fund the program.
In today’s political environment, with a divided Congress, House Republicans squabbling about who should become speaker, and former President Donald Trump the likely 2024 GOP nominee in a rematch against President Joe Biden, bipartisan Social Security reform is almost unthinkable.
No lawmaker wants to run for office on a policy platform of changing the eligibility age. Yet few are willing to take politically painful steps to stem Social Security’s red ink, which could include tax hikes, slower benefit growth, or some combination thereof.
And if policymakers wait until the 2030s to address Social Security’s structural problems, it would be almost impossible to devise a credible plan at all, according to Blahous.
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Biggs pointed out that policymakers have known the Social Security trust fund would run out in the 2030s since about 1990, and that still no action has been taken. He said there is no appetite for fixing among most politicians.
“Congress doesn’t like to tell people we’re going to lower your benefits. It doesn’t like to tell people we’re going to raise your taxes — they just kick the can down the road,” Biggs said. “The problem is, you can only kick it so far.”
