Transforming Social Security for an aging society.
Subject: Retirement age (Laws, regulations and rules)
Social security (Management)
Baby boom generation (Compensation and benefits)
Age distribution (Demography) (Forecasts and trends)
Author: Burkhauser, Richard
Pub Date: 09/22/2010
Publication: Name: Human Ecology Publisher: Cornell University, Human Ecology Audience: Academic Format: Magazine/Journal Subject: Health; Science and technology; Social sciences Copyright: COPYRIGHT 2010 Cornell University, Human Ecology ISSN: 1530-7069
Issue: Date: Fall, 2010 Source Volume: 38 Source Issue: 2
Topic: Event Code: 930 Government regulation; 940 Government regulation (cont); 980 Legal issues & crime; 200 Management dynamics; 280 Personnel administration; 010 Forecasts, trends, outlooks Advertising Code: 94 Legal/Government Regulation Computer Subject: Government regulation; Company business management; Market trend/market analysis
Product: Product Code: 9105310 Social Security NAICS Code: 92313 Administration of Human Resource Programs (except Education, Public Health, and Veterans' Affairs Programs)
Geographic: Geographic Scope: United States Geographic Code: 1USA United States
Accession Number: 266957302
Full Text: The typical American is getting older. Changes in our age distribution caused by substantial declines in fertility rates and increases in life expectancy, together with the aging pi the baby boom generation, will require substantial changes in Social Security.

Thus far, most discussions of maintaining Social Security's long-term financial stability have focused on either increasing taxes or reducing promised benefits. But given improved life expectancy and overall health in succeeding generations of Americans, any Social Security reforms must begin with an increase in its retirement age, since to do otherwise is to permanently anchor retirement at age 62 for increasingly healthier and longer-living Americans. Fixing retirement at 62 will require greater taxes and less consumption while the young pay for increasing longer years of retirement.

The decline in the age of retirement, despite substantial improvements in health over the 20th century, was in large part a response to a public and private retirement system that encouraged workers to retire at age 65 and earlier. Those incentives began to change in the 1980s, and so has work behavior at older ages. The long-term decline in the labor force participation rates of older men ended in the mid-1980s. Key changes in Social Security--reductions in the earnings test tax and the gradual increase to actuarially fair levels of adjustment for postponing acceptance of benefits past age 65--and the profound shift from defined-benefit to defined-contribution employer pension plans in the private sector led to substantial increases in employment by older Americans in the 1990s. The ending of the earnings test for those ages 65-69 in 2000 further increased work at older ages thereafter.

Such findings suggest that, given appropriate incentives, workers are not only capable of work at older ages, but will choose to do so. For this reason, such structural changes, which increase the work opportunities of older persons, offer a real alternative to current proposals for solving the Social Security fiscal crisis and do so in a way that is more consistent with the improved health and productivity of current and future generations of older workers.

An increase in the early retirement age is the structural change most likely to increase employment at older ages. Raising the early retirement age for Social Security is relatively neutral with respect to Social Security program liabilities since benefits are now close to being actuarially fair at all ages. But it is likely to reduce employment exits at this age, hence increasing the overall employment rate, total GDP, and tax revenues. Therefore, supporters of the current early retirement age should be required to justify why it remains sound policy to offer all Americans the option to retire at age 62, given the improvements in life expectancy and health since this early retirement option was first introduced for men in 1961.

[ILLUSTRATION OMITTED]

It is certainly not the case that this option is being taken primarily by those who are unable to work or who have no other sources of pension income. My research was the first to show that the vast majority of persons who took early Social Security benefits at age 62 had neither a work limitation nor relied on Social Security benefits as their sole source of retirement income. Subsequent research by others has confirmed this finding.

Americans in the 21st century can work longer due to gains in life expectancy, productivity, and health. My research shows that Social Security changes already in place have made age 65 an irrelevant age with respect to employment exit. But as we struggle to further change our social structures to accommodate demographic changes in our society, it will become increasingly important to raise the earliest retirement age for Social Security benefits in recognition of our collective need to increase our years of work to support our longer lives.

Richard Burkhauser is the Sarah Gibson Blanding Professor of Policy Analysis and Management
Gale Copyright: Copyright 2010 Gale, Cengage Learning. All rights reserved.