Retirement Age Maybe Too High
In April, thousands of people took to the streets of Paris, France, to protest a new law that raised the retirement age from 60 to 64. Demonstrations were also held around the country to oppose reforms that lawmakers said were needed to continue financing the costly pension system.
In the United States, a similar proposal to raise the full retirement age is also stirring controversy, even though there have been no changes yet to the existing law.
Proponents for increasing the full retirement age from 67 to 70 say Americans are living longer. As a result, people are spending more time in retirement and putting a financial strain on Social Security, which is projected to be insolvent within the next decade. Therefore, proponents say raising the retirement age would encourage people to work longer, boost their future retirement incomes, and avoid making across-the-board cuts to Social Security benefits.
A budget plan offered in 2022 by the House Republican Study Committee calls for gradually raising the full retirement age until it is increased by three years, from 67 to 70.
Opponents of raising the full retirement age argue that just because people are living longer does not mean that they will be able to work longer, especially if they have physically demanding jobs.
“Those who are in favor of raising the full retirement age are “typically people with cushy, remunerative white-collar jobs—the types of jobs that are fun and intellectually engaging for octogenarians,” Annie Lowery wrote in an article for The Atlantic. “Most people do not have those jobs, especially not older workers without a college degree.”
This is one of the reasons why the “average lower-income American quits working and applies for Social Security as soon as they are eligible, trading a lower monthly benefit for the ability to stop changing car tires or working a cash register for $11 an hour at age 62,” Lowery further stated.
Workers are eligible to receive Social Security benefits at age 62, and many opt to retire early, but doing so will result in getting permanently reduced monthly benefits.
The full retirement age was 65 when Social Security was originally established in 1935. However, due in part to people living longer, the full retirement age was raised to 67 after the program was overhauled in 1983.
If funding for Social Security runs out when predicted, the program’s 67 million beneficiaries can expect to see a reduction in their benefits.
“People say the following: We can do it either through benefit cuts, tax increases, or raising the full retirement age,” Alicia Munnell, director of the Center for Retirement Research at Boston College, told CNN. “There’s no third option—there are only benefit cuts or tax increases. Raising the full retirement age is a mechanism for cutting benefits.”
Social Security Funding in Jeopardy
Debates over raising the full retirement age have been heating up since the Congressional Budget Office projects that the Social Security trust fund will run out of money within the next decade.
To help Social Security remain solvent, studies and surveys have found overwhelming support for eliminating the payroll wage cap and making high wage-earners pay more Social Security taxes. Social Security is funded through payroll taxes. For 2023, employers and employees each pay 6.2 percent of wages up to the taxable maximum of $160,2000. Self-employed individuals pay the entire 12.4 percent. Any income beyond $160,200 is not taxed for Social Security. So, if a person makes $300,000 a year, $139,800 of that income is not subject to Social Security tax. This is the point of contention with those who want higher-income earners to pay their “fair share” for Social Security.
“This is unfair,” Lowery wrote in her article for The Atlantic. “There’s no good reason that millionaires should pay a lower tax rate than their assistants do to help finance the country’s retirement benefits.”
Senate Budget Committee Chairman Sen. Sheldon Whitehouse, D-R.I., hopes his bill will help shore up future funding for Social Security. Whitehouse’s Medicare and Social Security Fair Share Act would require wages above $400,000 to be taxed for Social Security.
“Right now, the cap on Social Security contributions means a tech exec making $1 million effectively stops paying into the program at the end of February, while a schoolteacher making far less contributes their share through every single paycheck all year,” Whitehouse said in a press release. “That’s not fair.”
Other Senate members are also working on making changes to Social Security. For instance, Sen. Angus King, I-Maine, and Bill Cassidy, R-La., are leading a bipartisan group that proposes to create a sovereign-wealth fund that could be financed with an investment of $1.5 trillion or more in borrowed money. If the initial investment does not generate an 8 percent return, the plan calls for increasing the maximum taxable income and the payroll tax rate to make sure Social Security stays on track to be solvent for another 75 years.
It was initially reported that the bipartisan coalition wanted to raise the full retirement age to 70, but Cassidy said that proposal was not being considered.
Needless to say, many Americans are not in favor of raising the full retirement age to 70. A 2023 Quinnipiac poll found that nearly 78 percent of respondents surveyed opposed the move, while 17 percent of those surveyed said they would support it. Of the 1,795 respondents, 77 percent said they were Republican, 81 percent said they were Democrats, while 75 percent said they were Independents.
According to Lowery, those who favor raising the full retirement age are not taking into consideration the health and socioeconomic status of Americans.
“The number of healthy years that lower-income Americans can expect to enjoy by the time they hit middle age is also lower than you might think,” Lowery wrote. “What some researchers call health span—meaning the length of time a person spends living without major illness or disability—is heavily predicated on a person’s socioeconomic status. The rich get to retire and have fun; the poor have to work until their body starts to give out.”