To be pushing age 70 and still working is a scary thought. But are we kidding ourselves that we'll be able to retire by 62 just because we can start collecting Social Security?
For the short answer, I look to two new studies, both out this week. The first from the Economic Policy Institute, a D.C.-based, nonpartisan think tank that examines how economic policies affect the needs of low- and middle-income Americans. The second is from another nonpartisan think tank, the National Center for Policy Analysis, which promotes "private, free-market alternatives to government regulation and control."
Monique Morrissey, a former AFL-CIO employee and now-economist at the Economic Policy Institute, says that to understand how changing the retirement age would affect Social Security beneficiaries, we should know the age at which people actually retire.
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There are a few reasons why we're misinformed about the "average retirement age," Morrissey argues, and especially about those who claim they're "early retirees." Measures are based on three things: Social Security take-up, surveys from people who consider themselves retired and data based on a labor force participation rate that lumps retirees in with others who aren't working, like disabled people and full-time caregivers.
When other factors are filtered, Morrissey closes in on an average retirement age of 65.5. From a policy standpoint, she says, it may be better if lawmakers get clear on that, and to say, "65- and 66-year-olds need to be working longer," not the less radical-sounding "62- and 63-year-olds need to be working longer."
As for the NCPA, their argument is based on simple math. Most Social Security reform proposals would result in benefit cuts, but if the program pays out less in benefits there's an offsetting gain: "payroll taxes needed from younger workers to support the program will be lower than they would be to fully fund benefits under the current program."
Basically, raising a 41-year-old middle-income man's retirement age to 70 would reduce his lifetime benefits by about $60,000. But since his taxes would fall by about $40,000, compared to the taxes necessary to fully fund benefits under the program right now, the lower tax burden would offset two-thirds of the benefit loss.
Here's where I'd like to give my encouragement to raising the retirement age. But even working longer might not be enough. An EBRI study this summer found deferring retirement doesn't always make up for the retirement shortfall so many of us face. According to EBRI's research cited in U.S. News & World Report, "the lowest-earning 25 percent of Americans would have to work until age 84 so that 90 percent of them would have even a 50-50 chance of having enough money to afford basic living expenses and out-of-pocket medical care."
If that's the case, millions of baby boomers now have absolutely no room to absorb even the smallest benefits cuts.
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