WASHINGTON—With President Bush and Congress looking for ways to close a projected Social Security funding shortfall of trillions of dollars, one option is to delay the early retirement age, now 62, when people can begin taking benefits.
Delaying early retirement could reduce a Social Security financial shortfall that the system's trustees project at $3.7 trillion over the next 75 years. Nearly 6 in 10 eligible Americans take early retirement. That trend could strain the system's finances badly when baby boomers—those born from 1946 to 1964 _begin retiring in 2008.
The retirement of some 76 million boomers will drain Social Security's reserves. By 2030, one-third of the U.S. adult population will be collecting Social Security checks. If 60 percent retire early, that's 45.6 million people taking cash out of the Social Security system starting at 62.
When Americans retire early, Social Security takes a double whammy: Benefits are paid out earlier, and the retired workers stop paying wage taxes into the system sooner than they would if they retired at 65. Workers who retire at 62 get a monthly benefit that's 20-30 percent below what they'd get if they waited till age 65, but that's not enough to offset the net impact on the system of mass early retirement.
"It's the combination of the two that makes early retirement more expensive" to the system, said Eugene Steuerle, a senior fellow at the Urban Institute, a liberal research center in Washington. "A year or two of more work is a powerful increase (in funds) for any system."
During his State of the Union address, President Bush identified delaying early retirement as one of a handful of ways he'd consider to fix Social Security. As far back as the mid-1990s, an advisory panel to the Social Security Administration said the future funding shortfall could be reduced by 13 percent or more simply by raising the early retirement age by the same rate that the regular retirement age rises.
Under a schedule that Congress set in 1983—the last time Social Security was overhauled—the regular retirement age will rise to 66 for people born from 1943 to 1954, and to 67 for those born in 1960 and later. For the birth years 1955 to 1959, the retirement age rises by two-month increments each year. For example, the retirement age for those born in 1955 rises to 66 plus two months; 1956, 66 plus four months, and so on.
Congress didn't change the early-retirement age, but some leading lawmakers are considering it now.
Sen. Trent Lott, R-Miss., is expected to propose legislation that would index future rises in the ages for both regular retirement and early retirement to changes in the average U.S. life span. A male worker who retired at 65 in 1940 could expect to live another 12 years, a woman another 13 years. Men now expect to live 16 years after they retire at 65, women 19 years. As people live longer, Lott argues, their eligibility to collect retirement benefits should reflect that.
"It needs to be done, and it's less painful. You can't blame it on your senator, your congressman; you blame it on demographics, for goodness sake," Lott said.
Congress also is talking about bumping up the regular retirement age to 70. That would fix about 36 percent of the funding shortfall, according to Social Security actuaries. The shift could be phased in to avoid hurting soon-to-retire Americans, and it also could address early retirement.
Under the current ratio of benefit reductions for early retirement, workers seeking to retire eight years before a usual retirement age of 70 would lose half the monthly benefit they'd get at 70. Assuming that most probably would choose to work a few more years, that would be a de facto increase in the early retirement age without changing the law.
"By moving the normal retirement age up, it's a way of decreasing the number of people taking it at 62," said Ron Gebhardtsbauer of the American Academy of Actuaries.
But that won't happen without a big political fight.
The AARP, the powerful seniors lobby, defends early retirement. Tinkering with it is "one of the public's least favorite options" in Social Security restructuring, according to David Certner, the head of the AARP's federal affairs office.
He left no doubt that the AARP would view any changes to the retirement age—early or regular—as a declaration of war on aging Americans.
Certner noted that older Americans often face age discrimination in the workplace, and even those who want to work longer may not find jobs.
"There is a white-collar, blue-collar split on people's ability to do that, and what is the availability of jobs," he said. "As you might imagine, 65-year-olds are not the most sought-after" employees.
Raising the retirement or early-retirement age may prove a tough sell to the American public. Today, retirement isn't an end but often a beginning to a fuller life. And given that a 62-year-old man can expect to live another 17.5 years, the "rest of his life" amounts to almost a third of his life up to that point.
But spending that much time in retirement could be a recipe for disaster, cautioned Barry Bosworth, an economist at the Brookings Institution, a center-left research center in Washington. Early retirees who outlive their private pensions and retirement savings would be left to live off Social Security benefits that were reduced because they took early retirement.
"What we are going to have is a substantial increase in poverty among the very old," Bosworth predicted. "We will come under tremendous pressure to bail these people out."
(Knight Ridder correspondent James Kuhnhenn contributed to this report.)
(c) 2005, Knight Ridder/Tribune Information Services.
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