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 payments."
With baby boomers approaching retirement age, the federal government must act to meet the future needs of the Social Security trust fund, Manton said.
"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," he said.
Manton said the United States isn't the only country dealing with this phenomenon.
"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," he said.
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, he said.
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 said.
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.