Increasing full retirement age for all would be unwise

Social Security faces a serious funding problem. The program takes in too little money to pay for all the pensions promised to future beneficiaries. Government forecasters predict Social Security’s reserve fund will be used up between 2030 and 2034. There are two basic ways we can eliminate the funding gap: Cut benefits or increase contributions. A common proposal is to increase the age at which workers can claim full retirement benefits. For people nearing retirement today the full retirement age is 66. As a result of a law passed in 1983, that age will rise to 67 for workers born after 1959.

When policymakers urge us to raise the retirement age, they are proposing to increase the full retirement age beyond age 67, possibly to 70, for workers who are now in their 30s or 40s. This saves money, but it also cuts monthly retirement benefits by the same percentage amount for every worker, unless workers delay claiming a pension. The policy might seem fair if workers in future generations could all expect to share in gains in life expectancy. However, new research shows that gains in life expectancy have been very unequal, with the biggest improvements for workers who earn top incomes. Life expectancy gains for workers with the lowest incomes have been small or negligible.

If the full retirement age were raised, future retirees who have high lifetime earnings can expect to receive some compensation when their monthly benefits are cut. Because they can expect to live longer than today’s retirees, they will receive pensions for a longer span of years after 65. For low-wage workers, there is no compensation. Since they are not living any longer, their lifetime benefits will fall by the same proportional amount as their monthly benefits. Thus, “raising the retirement age” is a policy that cuts the lifetime benefits of future low-wage workers by a bigger percentage than it cuts the lifetime benefits of future high-wage workers.

The fact that low-wage workers have seen small or negligible gains in life expectancy signals the fact that their health when they are past 60 is no better than that of low-wage workers born 20 or 30 years ago. This suggests their capacity to work past 60 is no better than it was for past generations. A sensible policy for cutting future benefits should therefore preserve current benefit levels for workers who have contributed to Social Security for many years but have earned low wages.

Editor’s note: This piece originally appeared in CQ Researcher.