Social Security Age Inflation

As many of you know, I'm not the biggest fan of how the government spends our money. It's been shown to be wasteful in many different ways and I don't think it's the best money manager out there. And while this post isn't about waste per se, it is about how the government uses a ton of our money through Social Security.

In Politics and Your Money, I said I favored the following as a way of adjusting the Social Security system to make it more financially solid:

Raise the age at which benefits are received. It's in alignment with the original intent of the program, but politically I don't think it will happen.

At that point, I didn't have specifics, but now I do. Consumer Reports has listed the eligibility ages for various Social Security benefits if they had been adjusted since these programs began. The details:

• Social Security early retirement age (currently 62) would have been 65.6 to 67
• Social Security normal retirement age (currently 66 to 67): 73 to 81.8
• Social Security delayed retirement age (currently maxes out at 72): 76 to 78.6
• Medicare eligibility (currently 65): 70 to 72
• Penalty-free IRA withdrawals (currently 59.5): 63.8 to 66

These look like good/fair numbers to me (though I would like to get my own IRA money sooner) -- after all, the average lifespan has risen dramatically since the inception of the program, so why hasn't the age that benefits are available risen? Sure, there needs to be some sort of phase-in process to make this happen, but I certainly prefer this option to increased Social Security taxes. Why? Because I think the government is a poor manager of our money and I'd rather put the responsibility for my retirement in my own hands rather than those of the Congress.

That said, I'm not counting on anything from Social Security as part of my retirement number. Who knows where the program will be by the time I retire -- or if it will even be around. So I'm counting on it as "gravy" over and above what I plan to save for myself. This is another reason I'm not too excited about putting money into the system -- who knows what I'll get back (if anything.)

Comments

[rwh]

While I can understand the skepticism of many when it comes to SS, the reason it is in need of shoring up is not due to the nature of the program, but precisely because, as the posting mentions, Congress can't keep its hands out of the cookie jar. If you go back and look at the official budget figures since the last major overhaul in 1983 there has been nary a year when money wasn't "borrowed" from the "trust fund".

So, I agree with the notion that higher taxes will just lead to more government spending, but I want to make a preemptive strike against all the upcoming comments about the unsustainability of the program. The program is sustainable. The problem is it is treated as a cash cow to supplement current spending and borrowing.

And they have raised the age, perhaps not as far as they should have. When I was younger the age of full retirement was 65. Now for me it's 66.5. Since that's still about 15 years off for me I fully expect it to be raised another year or two by the time I get there. And I fully expect SS to be there in my retirement, but it will look a little more like welfare than it does now. I predict many will be means-tested out of a portion of their benefits so those with little or no net worth won't be living in the streets.

[Kevin]

I agree with leaving the IRA withdrawal age where it is. After all, that is my money.

[carol]

Raise retirement age? Means testing for Social Secuirty? S----w that! There are many people who can't work past a certain age because of illness or because of the physicality of their work. The govt. should tax every dollar and not give high earners a break by only taxing their income for SS up to a certain amount of money. Also, everyone should be paying into the SS system including teacher, govt. workers, railroad employees, and everyone else who earns a paycheck--no separate retirement systems for different groups. Our elected officials should be thrown in jail to raiding the "cookie jar". While we're at it, combine Medicare and Medicaid and put all the individual medical systems (fed govt., veterans, railroad, public sector)into one pot---everyone from womb to tomb getting the same medical care that's not dependent on age, marital or employment status. I won't vote for anyone who wants to cut Social Security or Medicare.

[Strick]

Carol - why lift the SS limit? do we really need to turn a failing social program into an even larger problem by having people we are going to have to pay $10K a month to in retirement benefits when they retire because of the larger amounts they put in. Or maybe you mean lift the cap, but don't increase their benefits, but I assume that is not what you mean since you said high earners are given a "break" (That's like saying I get a tax break over all Californians by not paying California State Taxes, even though thats because I live in PA).

Its not the lower class that gets hurt by dumping SS, they don't collect that much in SS benefits anyway if they didn't pay much into it. Without SS, then Welfare, Medicaid, etc. would take money from the taxpayers and redistribute to those that are really in need, as it already does for those under 65, which most taxpayers wouldn't really mind that much compared to what we pay out now to buy people's new RVs. Its paying those high SS distributions amounts out to millions of healthy relatively young middle-class folks that feel they deserve to retire at 65 even though they don't have the money saved (and who can really blame them when they've paid into this thing for so long) that just doesn't seem to make much sense, especially considering how poorly the money is handled.

[MBirchmeier]

I'm all for raising the retirement age for Social Security as well. IMO it should be tied to the census, and age related benefits given to the oldest X% of the population.

@Carol: Social security isn't just given to the elderly. Benefits are given to those that fall ill or injured as well. Social Security was never meant to be a 'retirement program' it was meant to be a safety net for those who are unable to work. An age of 65 was deemed old enough at the programs inception to be 'old enough to be cared for' independent of a specific issue keeping one away from work. As health care improves and longevity increases, people aren't as frail at 65 as they used to be. IMO pegging an age to the oldest percentage of the population automatically adjusts the age, and keeps costs down.

[JimL]

Carol,

I wouldn't mind as much on lifting the cap if that also meant that the benefits would also increase. As the benefits are capped, so should the amount that one pays in. Why should one pay more for something if they happen to have a higher earned income? Does that also mean that they should pay more for everyone else? Should we have a "high income line" at McDonalds to where higher earners pay twice as much for their burger?

Social Security was not set up as an entitlement. Instead, it is a program that you pay something in and get a benefit based on the amount you have paid in over the years (not including disability benefits, etc.).

[Matt H]

I too like the idea of a gradual, phased-in rise of the retirement age, only I wouldn't stop when we caught up to the program's original intent. Just keep going, gradually, until the old-age part of Social Security is effectively eliminated. That's the most painless way to disentangle ourselves from the pyramid scheme.

[Matt H]

It took me a couple minutes to figure out what naughty word Carol was protecting us from by dashing it out. I just couldn't think of an unutterable word that starts with S and ends with W. I finally realized it was "screw". Whew, rough stuff. I hope I haven't corrupted anyone by revealing that! :)

[kitty]

I am not sure adjusting the age upwards as much is right.

Certainly, people live longer on the average, but this statistics is affected by many factors including some people with life-threatening conditions living longer. For example, if a person with a chronic illness lives to 65 instead of 60, this affects the average. If somebody survives a heart attack at 50-something who wouldn't have before - this affects "average lifespan" even if this person dies at 65. I am not sure how many more people nowadays live to the age of 80, for example than before. Most people still die between the ages of 60 and 80, and if a few more live for longer than 80 than before, it is not the majority. So if you raise the age as in the article, at least half of the retirees will not get any social security at all.

Additionally, most companies don't really want to keep people employed till the age of 70, and getting a new job even after the age of 50 is tough, more so at 60. You ability to do the job is affected as well. You may not be as strong physically, your brain may not be as sharp, your memory isn't as good. This is the time when many people start getting chronic diseases, so delaying medicare to anybody until 70 will result in many uninsured and uninsurable. I know many people here believe that they'll stay healthy until their 80s because of prevention, but prevention can reduce certain risks - in some cases by a lot, in some - by not that much. Incidentally, my never-smoked-a-cigarette-in-her-entire-life mother has just been diagnosed with lung cancer. No, my father hasn't smoked either, and no family history. Sometimes bad luck happens.

I don't particularly count on SS money to be there when I retire (and I am 49). I do think medicare should be there.

[Lord]

Raising the age may be chosen in the future, but since projections beyond 30 years are fraught with error, this is something that should be delayed until it becomes clear it is necessary, 2025 would be about right. The problem with raising the age is no one wants to hire those workers and it greatly increases the odds more people will exhaust their savings trying to get there. Now if we added an employer of last resort, it would have more going for it. Since you will get at least 78% of it, plan on it or not, it will be there.

Since SS only provides for a 42% replacement rate which largely corresponds to the fixed portion of a portfolio, and provides all its other insurance aspects, it actually does quite well. The sad part is so few use private accounts and save for the rest which means without it over half the elderly would be indigent. It is also a very strong caution against reducing it.

[F. Morana]

As I've said here repeatedly, Social Security benefits are your ENTITLEMENT, to which you have contributed greatly over a lifetime, and to which you have every right to expect a healthy, hefty return.

Imagine if, instead of having contributed five, six, or seven percent of your income to S.S. during your lifetime, you had simply put an equivilent amount of money into conservative "index funds" for all those years -- I think most of us would have a good $2-3 million dollar portfolio by the age of sixty.

(By the way, $2-3 million dollars is plenty enough to fund one's retirement -- at 3% interest you'd be drawing over $60K per year.)

[James]

Thanks Matt H for figuring out the "S---w" puzzle. I was still pondering that one.

I agree with the gradual raising of the age. I think it should be tied to birth year rather than census data. While census data might give us a more accurate number to go by, I don't like the idea that someone would not know when they could start receiving benefits. For instance, if the retirement age is 67, then a new census causes it to jump to 68, then everyone that was planning for 67 now has an extra year to wait. If it is tied to birth year, then you always know that I was born in 19XX, so I can receive benefits in 20XX.

For me, it is a purely academic discussion because I doubt I will see any of the money that I am putting in to the system (current age: 27). Good thing us "high earners" are given a "break" because I have had to put in the max the last three years that I will never get to see. I would hate to think of having to pay in even more.

[BTGNow.net]

What an interesting way of seeing things. I always knew that when our you nger generation got round to retiring, we'd be retiring much later, but this gives me a decent idea of what kind of numbers we're talking about. The Social Security normal retirement age of between 73 and 81 is a real eye opener. I hope medical science catches up with economics to find ways to ALLOW the majority of people to be able to work that long!

This actually reminds me of a blog post I wrote a little while ago, in which I counseled my readers not to count on their pensions: for our generation, it's an immature thing to do, financially. We have to ensure that we can fund our own retirement, because even if social security is still around 50 years form now, it won't be anything we'd want to live on.

[BTGNow.net]

Wow, a couple of weird typos in my last comment. That'll learn me to post when I'm sleepy!

I really like this blog by the way!

[Jenny]

Kitty makes a very good point that the increase in life expectancy over the past century has had more to do with a lower infant mortality rate than anything else.

That said, I don't have a problem with raising the age at which SS benefits kick in. The entitlement mentality is a huge issue. As others here have stated, the program was never intended to be a comprehensive retirement plan. As long as politicians talk about "fixing" or "guaranteeing" the program, it will simply reinforce the idea in many people's minds that they don't need to save for retirement because the government's doing it for them. Unfortunately benefits will never be cut because it's such a hot-button issue. Raising the age might be justifiable enough to pass in Congress.

[Kathy]

Living longer?? Depends on who you ask. The government already stole the money, so they say we are living longer and should not get the money until much older.

The doctors all say we are dying younger, of diabetes/obesity epidemic.

So which is it?

I doubt I will keep my job much longer, no one wants to pay for older, experienced workers. Not when you can outsource to India at 1/4 the price. Soon I will never work again due to outsourcing/age discrimination etc.

My Dad lost his job around age 52. He never found another job, no one would hire him at that age. Too young for medicare or SS. Racked up health care costs with no insurance to cover. Spent all his savings trying to survive. Went broke. Many will share this destiny. The last thing I need is a higher SS age. My age is 67 something. I KNOW I won't keep a job till that age!

[byhec]

I would love to see these SS and Medicare haters same comments in 35 years. "Oh my God my doctor said I got cancer and working will be difficult at best, but as long as I got about $2-3 million saved for medical treatments I should be able to make it to 78 when Medicare kicks in....that's a long time to go without eating however"

[Lord]

SS is not a comprehensive retirement program and never was. Those that think they don't also have to save are the same ones that would fritter it away if they didn't have to pay for it. Why save when they could just rely on need based programs. That would be the real entitlement. As to the return, SS also provides disability, survivorship, and dependent coverage. With diversified investment, it is what you should have in bonds and provides a bondlike return. Even ignoring these other insurances, my return will be a real 3.5% or worst case a real 2.7%, not bad when long bonds are at a -1%. My equities should do better, but I would not want to be 100% equities otherwise.

[Anitra]

I'd love to see the minimum ages raised, BUT... what happens then to the older folks (60+) pushed out of their jobs into "early retirement"? Companies don't want to hire someone "old", and working for minimum wage won't even cover health insurance, much less food and rent. (My father, a highly skilled engineer, has been looking for a new job ever since he was downsized 6 months ago. He's 65, and thankfully has a pension from the job he held before this last one, but he'd really like to keep working, and can't find anyone willing to hire him.)

Even people like my parents, who have been frugal savers all their lives, are finding it awfully hard to keep up with the cost of medical coverage; in my mother's case, that's even WITH the help she gets from Social Security and Medicare.

[MasterPo]

Anitra and F. Morana are right. Regardless of the rhetoric of living longer, working longer, the REALITY is you are most likely NOT going to be gainfully employed in your later 50's into your 60's or even 70's. Especially in white collar and high tech jobs. Not many 60 y/o programmers or network engineers for example. And, as previously mentioned, even in blue collar jobs the physical toll some jobs can take on your body makes it harder to keep working late in life.

BTW, keep in mind that in the 80's the U.S. Supreme Court ruled that you do NOT have the presumtive right to receive SS benefits even though you may have paid in all your life. WTF?!

[Apex]

Those that think the "raiding" of the SS fund is responsible for the short fall don't understand the accounting. Every dollar raided is still considered there. The money will just be taken back from the general fund when needed until all the raided dollars are back. That will of course cause general fund problems but it has no bearing on the solvency of SS. SS is fiscally sound to 2040 based on the money paid in, not based on the money that is still there (which is zero). If its soundness was based on that it would be unsound the first year more money was paid out than was paid in which I think is due to start happening in about 2018. So if the raiding is the problem, SS would be broke in 10 years. Its not, its broke in 32, because at that time (if CBO accounting is correct which who knows if it is) all money paid into the system (including the raided money which will have been taken back from the general fund) will now have been paid out.

Based on the original SS law you cannot pay out 1 extra dollar from the SS fund than what was paid in. I suppose one solution at that point is to change the law so they can just take the money from the general fund and then they can just raise income taxes to fund it (which of course they will already have had to do to fund all the take back dollars they will need to start getting starting in 2018).

So while the raiding is a fiscal budgetary irresponsibility problem, it doesn't have anything to do with SS solvency. And if you argue if the money was there it could have earned interest, that is true but the system was never set up that way. You don't get interest on your SS money, its simply a transfer from workers to retirees. And in addition if they had not raided the SS fund so to speak then the money they spent would have to have been borrowed, so they SS money would sit there earning very little interest while they sold trillions of dollars of bonds to fund the government spending. Of course the solution is to leave the SS money and not spend borrowed money. But thats like asking a 5 year old not to eat the cookie that is sitting in front of his nose. Eventually, when he thinks no one is looking, he is going to eat the cookie.

[MasterPo]

Apex is close to the problem. There is no "trust fund". No seperate, irrevocable trust account like an insurance company is supposed to have for it's annuity holders. The so-called "trust fund" is merely a pile of Treasury bonds which are IOU's from the U.S. Treasury. IOW, the SS "trust fund" is put back into the general fund. That's what is meant by taking the SS funds off-budget - not including the SS Treasury "investments" (what a joke!) as general budget cashflow.

It's like taking $1 out of your left pocket, putting it in your right pocket, then putting an IOU for $1 back in your left pocket and thinking you now have $2 to spend!

[Bad_Brad]

If the intent of Social Security was to provide a social safety net for those who have truly outlived their money, which I believe it was, then this is absolutely the correct way to go. The problem is, Social Security has morphed over time from a social safety net into essentially a government-funded defined benefit retirement plan (like a pension).

There will not be enough political will to make this change in the near-term, at least not with the sheer number of Baby Boomers out there in these relevant age groups who would be impacted by this change. At some point, when Gen-X is in this age group (with much fewer people) and the Echo-Boomers are the ones paying the bulk of Social Security, that may change.

So, as a member of Gen-X, I fully expect to pay Social Security for years and years and then have the Echo-Boomers slim down or eliminate the program for me.

[Todd]

Social security is largely a system created for dummies who don't save for retirement. As such, those dummies should have to finance it entirely. The FMFs of the world should be able to opt out.

Actually, a just system would be as follows. When a person turns 18, he can either sign up for the system by certifying that he's too stupid and/or too lazy to take care of himself or, in the alternative, he can elect not to participate and thereby avoid social security taxation in its entirety.

[MasterPo]

Brad, Todd et al - At the time SS was established few employers offered a retirement and insurance plans. There were no 401ks or IRAs, no disability insurance, and very little life insurance available to the masses.

But over time these things were established and are now a defacto requirement in business to attract and retain good employees. I know from first hand experience that a great many people either by choice or laziness simply don't sign up for them. Not everyone will end up with a $1 million dollar retirement portfolio. But that's no reason not to take part in the plan.

It's not my responsibility to take care of someone who didn't take care of themselves in life. There is ALWAYS *something* a person can do to prepare for the future. A little is better than none.