A Congressional proposal to raise the minimum eligibility age to 70 to start collecting full Social Security payments would be an unfair and unwarranted benefits cut, says a national expert on retirement benefits.
“I don’t want to see benefits cut and increasing the age to 70 is a benefits cut,” says Alicia H. Munnell, director of the Center for Retirement Research at Boston College and the Peter F. Drucker Professor of Management Sciences at Boston College’s School of Management. “People need the current level of protection. Social Security is the backbone of our retirement system.”
“If the age is increased to 70, those who need to start claiming at 62 get even less than they do now,” she says.
Another group that would also be among those most negatively impacted by a phased-in raise in the age to claim would be those who are not highly educated because they are in manual labor or other jobs that make it hard to work until they are 70, Munnell says.
Social Security is funded through the Old Age and Survivors Insurance trust fund (OSI), which will be depleted by 2035 if action is not taken before then to replenish it. This is one of the few points agreed upon by Munnell and a conservative caucus of House Republicans pushing the proposal. Republicans say that because life expectancy is up, people can work longer, so the age to start collecting full benefits can be raised.
“I’m in favor of people working as long as possible, but that has nothing to do with increasing the age,” Munnell counters. “That’s a benefit.”
The minimum age to claim full Social Security benefits has been gradually increased from 65 to 67. President Reagan signed a law in 1983 raising the full retirement age over a period of years to 67 — it was the last time the age was increased. This last increase calls for those born in 1960 or later to wait until they are 67 to claim full benefits.
Those who can work until they are 67 can postpone claiming Social Security benefits, Munnell says, adding, “but not everyone can postpone claiming.”
In an opinion piece for MarketWatch last year, Munnell takes on The American Academy of Actuaries for its support to increase the age.
“Their argument is straightforward,” Munnell writes. “Social Security is running a 75-year deficit equal to 3.5% of taxable payrolls. The only way to fix the problem is to raise revenues or cut benefits. Life expectancy at 65 has increased, and is projected to continue to increase, which pushes up program costs. Therefore, Congress should make people work longer and postpone claiming their benefits. Raising the full age to 70 could cut the long-run deficit by about a third,” Munnell said, describing the Academy’s rationale.
“Just to be absolutely clear, increasing Social Security’s full retirement age is not just a question of ‘postponing’ claiming; it is a benefit cut,” Munnell writes, explaining her own perspective. “Those who are able to delay retirement receive one less year of benefits. Those who cannot adjust their retirement behavior get lower benefits due to the increased actuarial adjustment — an adjustment made to keep lifetime benefits constant regardless of claiming age. Currently, those claiming at age 62 receive only 70% of the benefit available at 67. If the full retirement age were increased to 70, that amount falls to 55%.
“I’m against any form of benefit cut,” Munnell writes, “because the rest of the U.S. retirement system seems quite wobbly to me. At any moment, only about half of private sector workers are covered by any type of workplace retirement plan. That means some people never are covered and are totally reliant on Social Security, while others move in and out of coverage and end up with modest balances.”
Munnell said the most effective way to replenish the fund is a multi-faceted approach, including raising the cap on payroll taxes. Raising the cap is also favored by progressive Democrats, and eschewed by Republicans, on Capitol Hill.
Currently, payroll taxes are applied to the first $160,200 in earnings and then capped. She would advocate raising that cap to between $250,000 and $400,000 “so those with higher incomes pay a bit more in taxes,” she said.
Other ways to increase Social Security revenue might include “an increase in the payroll tax without an expansion of its base, to a smaller increase in the payroll tax with an expansion of its base, to an increase in the income tax,” writes Munnell in a paper titled “The Implications of Social Security’s Missing Trust Fund,” published on the website of the Center for Retirement Research at Boston College. Co-authors are Wenliang Hou and Geoffrey T. Sanzenbacher.
“Taxing society more widely – through an income tax increase – could make sense given that society as a whole benefited from having a generation of people receive benefits who did not fully contribute to the system,” the article continues. “In theory, any of these taxes could be raised permanently by a moderate amount, effectively paying the missing interest from the Missing Trust Fund, or by a larger amount, ultimately replacing the Missing Trust Fund before returning taxes to their current level. But the real issue is that the cost implications of the Missing Trust Fund are worth considering in any proposal to close Social Security’s financing gap.”
“The Missing Trust Fund is mostly a result of Legacy Debt built up during the early years of the Social Security program,” according to the paper.
Denise DiStephan is an award-winning, veteran journalist and communications professional based in New Jersey.