Raising the normal retirement age in the United States to age 70 could
save the federal government billions of dollars each year and help shore
up the ailing Social Security trust fund over the long term, according
to two university researchers.
Increasing the normal retirement age would be a plausible move because
Americans are enjoying longer, healthier lives, said demographer Kenneth
G. Manton of Duke University and actuary H. Dennis Tolley of Brigham Young
University. They said that the Social Security trust fund could save roughly
$50 to $60 billion on each year's group of workers by requiring them to
wait until age 70 to receive full Social Security benefits, instead of
the current retirement age of 65.
And those savings "only represent part of the benefit of such an
increase in retirement age in that not only would expenditures not be made,
but persons who did continue to work would contribute to revenues through
income and other taxes," the two researchers wrote in a report prepared
for the Social Security Administration, which funded the study. They said
that each year of age increase in the retirement age decreases payments
for a year and increases revenues for a year.
To come up with their findings, Manton and Tolley studied health and
mortality data from several National Long Term Care Surveys--longitudinal
surveys of the elderly population of the United States sponsored by the
National Institute on Aging--as well as information on Social Security
and disability insurance payments. On average, they said, increasing the
normal retirement age to 70 could save 95 cents of every dollar now spent
on people 65 to 69 years old who have retired with full Social Security
benefits. The savings would not be nearly as great if there were a large
increase in disability payments for workers once they pass age 65, but
that has not been the case, the researchers said.
In their report, the researchers noted a number of variables that could
affect their calculations. One is the "likelihood of persons opting
to continue to work at later ages. Even the conditions for this seem to
be changing as the physical requirements for occupations on average seem
to be declining in the emerging 'information' age."
Another variable is whether the US economy could continue to provide
enough jobs. An increase in the retirement age from 65 to 70 would imply
a need for roughly 10 million new jobs, Tolley and Manton wrote. They point
out that "if the median age of the US population keeps increasing,
then part of the jobs creation problem would be solved by a job shift (ie,
older workers would have to assume the job slots for younger workers if
the number of younger workers decline).
"Furthermore, it may be that full-time employment at ages 65 to
70 might be defined to be a 32-hour work week."
Limited Changes in Retirement Age in the Offing
Manton noted in an interview that limited changes in the normal retirement
age are forthcoming. Based on government action taken in 1983, the normal
retirement age would begin to rise to 67 after the turn of the century.
In addition, the Kerry-Danforth commission has studied a proposal that
would hike the retirement age to 70, and Manton said that he's even heard
talk of raising it to 72.
He acknowledged that it's hard to predict how such changes would be
received by the American public.
"The trend actually has been in recent years that the proportion
of people retiring not just at age 65, but at 62 and 59, has increased.
But part of the reason why this has occurred is because some retirement
programs were set up to provide incentives for early retirement,"
he said. "For example, we've had a period of downsizing and other
factors to reduce the employment rate and to get workers who aren't currently
trained for the current positions out of the labor force.
"Certainly, I think the incentives would change if you raise not
just the normal retirement age but also the age at which you can get partial
With baby boomers approaching retirement age, the federal government
must act to meet the future needs of the Social Security trust fund, Manton
"Assuming that fertility stays at a fairly moderate level and you
get these large baby boom cohorts becoming eligible in 2011--when they
first pass age 65--something more than a simple tax rate change has to
be done. Or if you do it only by a tax increase, then you get a very high
tax burden that could potentially slow down the growth of the US economy,"
Manton said the United States isn't the only country dealing with this
"It's a problem for most developed countries where fertility is
dampening out and older populations are growing rapidly. It's already happened
to some degree in some of the Scandinavian countries."
In Japan, a study estimated that 24% of the country's population might
be over age 65 by the year 2025. One response has been for older managers
in Japan to continue working as senior consultants, but for fewer hours
each week, Manton said.
Raising Retirement Age Could Lead to Other Changes
Raising the normal retirement age in the United States could lead to
other changes, Manton added. Workers could be encouraged to take leaves
from careers in mid-life to be retrained or to return to college. "That
may become a necessity, if the rate of technological change is rapid enough,"
And the federal government may need to mandate other changes to keep
older people in the work force longer. That might mean setting a fixed
number of years that a person could be eligible for Social Security payments,
Tolley noted in an interview that one of the problems with implementing
an older retirement age is that many people in the United States feel entitled
to a Social Security benefit when they reach age 65. Those people still
might choose to retire at 65, even though they will be penalized for doing
so, or they might even file for disability benefits, Tolley said.
"Changing feelings of entitlement could have a significant impact
on actual realized savings," Tolley said. "This impact could
be positive or negative."
Manton noted when the Social Security system was established in the
mid-1930s, people did not live as long, and therefore, had fewer years
of retirement. Now that people live longer than was initially contemplated
when the program was created, the government must develop a policy that
reflects the reality of changing life expectancy and health status, Manton
The average life expectancy in the United States today is about 75.5
years--slightly over age 73 for men and about age 79 for women. The average
life expectancy was 61.7 years of age when Social Security was passed into
law in 1935.