DURHAM, N.C. -- Raising the normal retirement age in the United States to
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 the Social Security trust fund could save roughly $50 billion
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 U.S.'s elderly population 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.
They noted in their report there are 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 U.S. 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 U.S. population keeps increasing, then
part of the jobs creation problem would be solved by a job shift (i.e.,
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."
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 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 U.S. 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 percent 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 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 workforce 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 73 for men and about 79 for women. The average life expectancy
was 61.7 when Social Security was passed into law in 1935.