In lieu of an abstract, here is a brief excerpt of the content:

71 4 Raising the Early Retirement Age Even if Social Security were not projected to have insufficient funds based on current life expectancy, continued increases in life expectancy would cause an insufficiency to occur in the future. Therefore, a practical reform proposal to maintain Social Security’s solvency should include an adjustment of Social Security for rising longevity. Many policy options could deal with the effects of increasing life expectancy on Social Security financing.1 First, the normal retirement age could be raised to a higher predetermined age. In the 1983 amendments to the Social Security Act, the normal retirement age was raised from 65 to 67, and that change is being phased in with a long delay, only taking full effect for people born in 1960 or later. The normal retirement age is also referred to as the full retirement age, but neither term is descriptively accurate. It is the age at which a worker can receive Social Security benefits that are not reduced for early retirement. It varies from age 65 to 67, based on year of birth. For example, for workers born between 1943 and 1954, the normal retirement age is 66. Liebman, MacGuineas, and Samwick (2005) suggest that the normal retirement age be raised to 68. Second, the normal retirement age could be indexed to rise as the life expectancy of retirees increases. The 1994–1996 Advisory Council on Social Security included such a measure in its recommendations.2 Third, the normal retirement age could remain fixed, with benefits indexed to life expectancy, so that benefits gradually decline as longevity rises for successive cohorts, as recommended in Chapter 3. Fourth, the early retirement age could be raised, with the benefits currently receivable at age 62 being received at age 63. Other options include raising the payroll tax rate, raising the payroll tax ceiling, adding general revenue funding, changing the benefit formula, and changing the number of years used in calculating Social Security benefits. While raising the early retirement age is not a popular idea, none of the options for restoring solvency pass that test. For more than 40 years, Social Security’s early retirement age of 62 has been an impor- 72 Turner tant benchmark for workers considering retiring. Raising it to keep it in line with increases in life expectancy could have a powerful effect on the retirement decisions of workers and on all retirement program costs, in both the public and private sectors. To allow workers ample time to adjust their plans, if the eligibility age for Social Security were raised to 63, such a change would presumably occur with a long delay, possibly 20 years, and with a phase-in period.3 An early retirement age of 63 has international precedents. In Germany , for example, the early retirement age is 63, while in the United Kingdom it is currently 65 for men, and is being raised over time to 65 for women. In Switzerland it is 65 for men and 63 for women. In New Zealand and Ireland, it is 65 (Turner 2007). In addition, historical precedent supports a higher early retirement age. In 1940, when Social Security first paid benefits, the earliest age at which workers could receive benefits was even higher—age 65. For more than 20 years, the earliest age at which men could receive Social Security benefits remained at 65. In 1961, the early retirement age for men was reduced to 62. The reduction for women had occurred five years earlier, in 1956. Chapter 2 considered issues relating to whether older workers would generally be able to extend their work lives if the early retirement age for Social Security were raised. Evidence presented in that chapter indicates that life expectancy has increased for both men and women, and for all major demographic groups in the United States. In addition, the physical demands of work have decreased, though not for everyone. This chapter considers a possible policy change of raising the early retirement age in Social Security from age 62 to 63 as one step toward dealing with increased longevity. Arguably, this change would be superior to the alternative of workers receiving less in Social Security benefits in the future. Either this change could be done in an ad hoc way, or it could be done through life-expectancy indexing, as discussed in the previous chapter. This chapter surveys early eligibility ages and eligibility requirements for social security...

Share