June 15, 2005
Actuaries Say Changing Retirement Age Would Improve Social Security Solvency
Ron Gebhardtsbauer, the senior pension fellow of the American Academy of Actuaries, today told Congress that an additional raising of the normal retirement age would reduce the Social Security solvency shortfall by approximately 36 percent. Representing the U.S. actuarial profession before the U.S. House Ways and Means Subcommittee on Social Security, Gebhardtsbauer said retirement age already is being raised by an act of Congress passed in the 1983 amendments.
"Social Security's normal retirement age recently increased from 65 to 66. Gradually raising it further by 1 month every 2 years would reduce Social Security's shortfall by about one-third. While that reduces the increase in annual benefits, it doesn't have to reduce total lifetime benefits, because each generation is living longer and therefore receiving benefits for more years, " Gebhardtsbauer said. He explained that the 1983 amendments reduced the impact of changing the normal retirement age to 66 by phasing it in gradually over six years so there would be little noticeable effect and it only affected people under age 45 at enactment. Thus, it had no impact for 17 years.
"Not only are Americans living longer, but we also are healthier at older ages and fewer jobs are physically demanding. People are also interested in staying active both mentally and physically, and jobs help to promote that," Gebhardtsbauer said. In comparison, he said price indexation can reduce benefits four times faster and it reduces disability benefit amounts too, whereas raising the normal retirement age does not. Both ideas affect early retirees. Workers could still retire at age 62 and receive Social Security benefits, but the benefits would be smaller.
To avoid inadequate early retirement benefits, some proposals gradually increase the earliest eligibility age from 62 to 65. While this only reduces Social Security's shortfall by an additional 10 percent, it can have a big impact on when people retire, since a person's retirement date is very much a financial decision. Gebhardtsbauer said this points out the importance of having an employer-sponsored pension system to provide supplemental benefits until Social Security is available. "Proposals on tax reform, lifetime savings accounts, or annuity taxation substantially change employer incentives to offer pension plans, so care should be taken to not kill them. Pension plans help us to not rely on Social Security for all our retirement needs," he said.
The American Academy of Actuaries is the nonpartisan public policy organization for the U.S. actuarial profession. The Academy provides independent analysis to elected officials and regulators, maintains professional standards for all actuaries, and communicates the value of actuarial work to the media and public.
Posted by Tom Troceen