4 hazards in raising the Social Security age

People who haven’t yet retired might want to hang onto their hats—and wallets. They could be in for some rough times if talk of raising the retirement age—as was last done back in 1983—becomes more than talk.

According to a CNBC report, although Congress has done nothing substantive to address the need to secure better future funding for Social Security—and is far less likely to do so in today’s disastrous political climate than it was when Reagan was president and signed off on the last changes—there does exist the possibility that politicians may seek the same remedy once more: raising the retirement age.

After all, lifespans have lengthened and health care, however inaccessible it may be to many, has improved in lots of ways. It might seem logical to compel workers to stay on the job longer before they can retire and start drawing on the Social Security benefits they’ve already spent many years paying into.

Although people do tend to grouse about government actions that affect their own plans, they are prone to take such a determination as a given and would likely try to hold off until an older age to retire—particularly if claiming benefits earlier means accepting a lower benefit (as it currently does for those retiring before their full retirement age, which at present stands at 67). If the age is raised to 69, as is talked about currently, there will be consequences—and not just the ones politicians may be aiming for

And since the law of unintended consequences will undoubtedly weigh in on any such action, according to the report, here are four potential effects such a “solution” may have.

1. People are financially unprepared for later retirement.

According to Alicia Munnell, director of the Center for Retirement Research at Boston College, the situation was quite different more than two decades ago, when many more people were entitled to collect a pension than is true today.

In  “Why are 401(k)/IRA balances substantially below potential?” by Andrew G. Biggs, Alicia H. Munnell, and Anqi Chen, they note that people in their 60s today may not have participated in 401(k) plans early in their career, as they did not exist.

“ Today’s near-retirees typically spent only about one-third of their working careers participating in a 401(k) plan, which partially reflects an immature system. But even among today’s younger workers, who are in a mature system, a majority do not participate.”

2. Life expectancy isn’t growing for everyone.

In another clear-cut example of how economic inequality is harmful, lower-income groups are the ones most likely to suffer if the retirement age is increased, since they’re less likely to live long enough to enjoy any of it.

According to a new report from the Urban Institute, “What would it take to reduce inequities in health life expectancy?” By 2017, “non-Hispanic black men’s life expectancy was 4.5 years shorter than that of non-Hispanic white men. Among women, the gap was 2.7 years. And since about 1980, the US has seen a widening gap in life expectancies between rich and poor people.”

A recent National Center for Health Statistics report notes a recent decrease in life expectancy for white males. The decrease can be attributed to “ unintentional injuries, suicide, and Alzheimer’s disease.” It also notes that drug overdose deaths have increased “significantly” from 2016.

3. Not everyone can last long enough to claim benefits even at today’s full retirement age.

Ill health drives plenty of workers not just to retire, but to retire early—thus sticking them with a lifetime reduced benefit that’s harder to live on. Johnson points out that if the retirement age is raised, people retiring at 62 will have even less to live on—and even if the early retirement age is increased to 64 or 65 from 62, there will still be people who just can’t manage to stick it out that long. If they’re not able to claim any benefits at all till they’re older, what will they live on in the meantime?

A report in the Proceedings of the National Academy of Science found “a marked increase in the all-cause mortality of middle-aged white non-Hispanic men and women in the United States between 1999 and 2013. This change reversed decades of progress in mortality and was unique to the United States; no other rich country saw a similar turnaround. The midlife mortality reversal was confined to white non-Hispanics.”

4. Boosting incentives to claim benefits later could pay off for some.

But there might be one positive: if people are encouraged by an increased incentive to wait till, say, age 75 to claim benefits, people who are able to stay in the workforce longer would probably take advantage of such an offer.

According to The Urban Institute’s Richard Johnson: “People seem to take this full retirement age as kind of a signal as to when the appropriate time is to retire.” He adds that the extra years in the workforce would allow those workers time to accumulate more retirement assets, as well as helping society through continuing to pay taxes and increasing workforce productivity.