Arnold Kling  

Government Dependency

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John B. Shoven and Gopi Shah Goda touch the third rail.


the Normal Retirement Age for Social Security in 2004 would have to be at least 71 (using lowest number in the table) and more likely 73 or 74 (using the gender blended results from Methods 1 and 2) in order to be consistent with the real age of 65 in 1935. Using the same logic, the age of Medicare eligibility would have needed to have been advanced by at least five years. Such adjustments would be politically difficult, but age inflation and the lack of adjusting for it has quite a bit to do with the solvency problems of Social Security and Medicare.

I cannot think of any policy change that I have advocated for longer or more often than that of raising the age of eligibility for Social Security and Medicare. Keeping the age of government dependency at 65 is the most insidious and quantitatively important reason for government expansion and the pending rise in tax rates.

The tendency is for the last few years of life to be ones of severe medical problems. However, those last few years are being pushed back. This would mean that if people have to work longer to support themselves, many would be healthy enough to do so (and others could be entitled to disability insurance). However, the reduction in Medicare spending would be relatively small, because many of the people who would lose Medicare eligibility would be relatively healthy.


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CATEGORIES: Social Security



COMMENTS (11 to date)
Flip writes:

An issue is that large corporations tend to push people out in their 50s in favor of younger people. There's very few people who make it to 65 in corporate America. I can't imagine these companies letting people stay until they are in their 70s.

Don Lloyd writes:

Arnold,

While I would likely agree with you on the vast majority of issues, increasing the SS retirement age makes no sense to me at all. If you need to cut the rate of growth of SS payouts, fine. There is no reason to think that the future mandated payout levels can be much of anything beyond an arbitrary relic of legislative history.

If you want the logic of 1935 to rule, then an appropriate rule would be that the SS retirement age be set according to the race and gender of the individual so that 2/3rds (educated guess, but certainly not less than 50%)of the individual's birth cohort will not survive to draw a penny of SS.

Anyone who uses the words 'solvency' and 'Social Security' in the same sentence isn't worth paying any attention to. They have apparently bought into the notion that the SS Trust Fund balance has some kind of economic significance, when at most it only serves as an authorizing mechanism for the Treasury to make up SS shortfalls. Any alternate authorizing mechanism that came into effect if/when the SSTF became exhausted would produce the exact same level of burden on the Treasury.

With 70% of SS recipients starting at age 62, even with a substantial payout reduction, it is clear that your desire to raise the retirement age is swimming against a strong current.

While it is understandable that academics don't care much about their retirement age, most private for-profit businesses have little demand for the higher costs and lower productivities of over 50 age workers coming off the street. A company with over 50 age workers is a company that is working on a buy-out plan.

Regards, Don

Matt writes:

Your point, and the Supreme Court agrees, is that we are not bound by any agreement we made with baby boomers 16 years ago.

The retirement creep is due to progressives, mainly Democrats, trying to ram down a boomer benefit tailored just for them on the backs of younger generations.


The result is that SS is operating way off efficiency in terms of balancing the natural retirement age, working off efficiency because of a price fixing attempt.

Libra writes:

While life expectancy has been going up, the aging process has not slowed down. If we follow the logical extension of your policy, someday people won't be able to retire until 75 and then they will spend their entire retirement in assisted living, nursing homes, and hospices. So much for enjoying ones golden years. Frankly, I'd rather take an earlier retirement and die younger. I've had multiple grand parents who's lives were extended past what anybody would want by modern medical technology. I don't want to go through the same thing, especially not if it's at the expense of the years 65-70.

The easiest solution for social security is to simply cap the total payouts to the total revenues you get from the 15% payroll tax. If the economy did not grow fast enough to raise wages, or if not enough people had kids, then everybody shares the pain.

AnotherDave writes:

My proposed solution is that we examine life expectancy, based on market insurance rates when people reach the age of 50. Then we agree what % of their life should be for retirement, and the people are informed of their retirement age at 50.

So if life expectancy at 50 is 75, and we say the last 10% is proper for retirement, then benefits kick in at 67.5. That way people can plan, but the entitlement is not wholly divorced from the current state of medicine.

Or we just do away with it, and let people save their own money.

jb writes:

I'm in favor of raising the age as well. People are living healthier into their 60s and 70s, and it isn't reasonable to hew to 1930s standards of age.

But there's probably ways to split the difference - let people choose from several payout options - a minimal payout at 65, better at 67, even better at 69, full at 71 (or whatever the actuarial numbers might justify).

Since so many people choose early retirement anyways, it's clear that they're not hurting for money. Might as well take advantage of that.

And yes, btw, if this means that a good chunk of the people die before they receive a full SS benefit... so be it. Social Security is not supposed to be a retirement plan. It's supposed to be a 'so you don't have to eat cat food' plan.

george writes:

The SS retirement age has already been raised, I happened to know because my mother was in the last cohort who could retire at 65, in 2002. Here are the current retirement ages.
http://www.ssa.gov/retire2/retirechart.htm#chart

dcpi writes:

If you are in favor of raising the retirement age to reflect 1935 realities, can us younger ones go back to paying 1935 level taxes too? What about 1960 level payroll taxes as a compromise? Paying more for less does rather seem like a raw deal no matter how you slice it.

Flip writes:

I was curious if the real value of SS payments is higher or lower now than it was in the 1950s and 60s.

I think Medicare is a much bigger problem than Social Security anyway.

dave.s. writes:

I sit at a desk and write things. It's reasonable to think that I could continue doing this til I'm 70. It's less reasonable to think that a carpenter or fence builder or nurse could keep doing what s/he is doing for that long - arthritis happens, and trick knees, and loss of physical strength.

David writes:

I'm sorry, but you seem to be stuck in the past: retirement is no longer the stage of life preceded by working. The upper middle class is now entitled to active retirement, when they travel and wait for their 35 year old children to finally get married and give them grandchildren. Active retirement is best pursued before the age of 70, so those govvie benefits really do need to kick in at 65.

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