RAISING SOCIAL SECURITY RETIREMENT AGE: A BIG BROTHER “REFORM” THAT REDUCES BENEFITS, WHILE INCREASING RISKS – QUITE UNECESSARILY

By Joan and Merton Bernstein

It takes colossal gall to propose, during a period of near-record unemployment, forcing older people to work longer by cutting their Social Security benefits and calling that “reform.” Yet that is precisely what Alice Rivlin, one of President Obama’s appointees to his Commission on Fiscal Responsibility and others propose. Their mantra is: we are all living longer and so should work longer. Advocates of this “reform” don’t also urges measures to assure job availabilioty. Nor do they proposes like limitations on private plans subsidized with employer tax breaks. Nor do they advocate banning employer offers to induce employees to retire early, offers often accompanied by threat of layoffs if “voluntary” acceptances prove insufficient.

“Reformers” attempt to neutralize senior opposition to these and other proposals to cut Social Security benefits with assurances that such changes will exempt those already retired or those aged 55, sometimes 57, on other occasions age 60, the different numbers used by former Senator Alan Simpson, President Obama’s appointee commission co-chair. Mr. Simpson at a commission meeting shrugged off his imprecision by explaining, “I’m not a numbers man.” The promised exemption cannot survive once the tens of millions marked for the benefit reductions realize they would be bilked.

But an accomplished numbers man, Jeffrey Liebman, President Obama’s Deputy Director of the Office of Management and Budget (OMB) collaborated on a 2005 “Nonpartisan Social Security Reform Plan” that advocated “Benefit cuts” through [rejiggering the benefit formula and]….”an increase in retirement age.” Raising the age at which full benefits become payable also reduces benefits that become payable thereafter at any other age.

In addition, they proposed raising the earliest eligibility age [EEA] from current age 62 to age 65. Liebman and his colleagues asserted that raising the EEA does not reduce overall program payout because a deferred benefit increment boosts benefits for each year of delay. But, the three omitted years are lost to those who die before age 65. It is no answer that surviving family members spouse would draw benefits – because they would be lower than the husband/wife combined benefit and for people dying at ages 62-64 surviving children would be uncommon. Shorter-lived program participants, disproportionately low earners, would get a lower return for their long-term work and program payroll tax contributions than under current arrangements.

Liebman and collaborators assert that boosting the early eligibility age “is likely to have positive labor market effects…encouraging people to work longer…because we want to protect individuals who might shortsightedly retire too early if given access to their Social Security benefits at too young an age.” They also refer to “myopic individuals who claim benefits too soon.” In other words, big brother knows best.

Such advocates mistakenly assume that personal choice determines the timing of applications for Social Security benefits. In the real world, technological change, surging imports or other competition, plant, office or store shutdowns, layoffs, an individual’s health, the health of one’s partner or parent, the absence of local or regional job prospects often force that determination.

In the real world, labor force participation by older people has steadily increased since 1994. Past age 65, a major determinant is extensive education. That argues for improving opportunities for education and training.

Beyond that, the presence of a pension plan than Social Security, more often available to high-earning white men, can be a major factor facilitating retirement. Some employers seeking to trim their work force provide extra benefits from retirement as early as age 55 to the onset of Social Security payments. In yet other circumstance, applicants have been out of work prior to the age of earliest eligibility.

Plans like the self-styled non-Partisan proposal offer no amelioration of dire circumstances. Rather, as Candidate Obama noted, the ownership society really means “you’re on your own.”

Advocates of delayed retirement assert that they seek to provide incentives for people to choose continued employment over Social Security. But it is cruel to “induce” such a choice when realistically many cannot choose work. Further, Social Security is already chock full of such incentives for those who can choose. Continued work produces higher benefits by virtue of a deferred retirement credit for each year of delay. Moreover, Medicare is unavailable until age 65. Yet the great majority of program participants commence Social Security before age 65, most do so by age 62 ½. We should pay attention to that conduct and not, as Jeffery Liebman and his cohorts urge, adopt a policy that eliminate options that fit personal circumstances best known by those living them.

The proposal would divert substantial funds now used to pay for assured benefits and place them in private accounts – the very device President Bush proposed for privatizing Social Security. Such accounts incur additional administrative costs and risks that the investments will fail, as they did so disastrously in the recent past.

Indeed, we should improve Social Security’s protections and benefits. We can afford Social Security and assure long-term solvency with only slight changes, for example the very revenue improvement that Candidate Obama urged – raising the upper limit on Social Security taxable earnings. And we should extend the Medicare’s coverage below age 65, thereby providing both necessary protections and achieving savings through the efficiencies and economies that Medicare constantly produces.