Raising the Retirement Age.

Great Debates
21

I think you’ll find that in a service economy, if obsolescence of body has become less of a concern, obsolescence of knowledge compensates. Things move *fast *these days.

Let me give you an example of what I mean: say you’ve worked in the foo field for 20 years, gradually becoming the utmost authority on the standard machine it uses, the bar. Along comes the flub, a new and improved bar which relies on completely different standards and processes to do the same thing, only better and shinier.

Now you could learn flubbing from scratch of course, but why would your employer pay for your seniority and now surplus_to_requirements bar expertise, when a new kid fresh from school is not only cheaper, but has already some rudimentary knowledge of the flub, and no preconceptions of how things should work or behaviours to unlearn ?
In other words, who needs a COBOL expert ?

22

It’s not quite that simple. Your experience with the bar is normally going to be useful in transitioning to the flub. Experience with a typewriter is useful in transitioning to a computer.

I suspect that part of the obsolescence of knowledge issue is that many older people will not learn to use a computer. Even though it isn’t that hard, it is somewhat intimidating to somebody whose electronics proficiency extends (at best) to programming a VCR.

That problem is compounded by the issue of one-size-fits-all software. Hardly anyone needs 90% of the features in MS Outlook, but they’re still there, which makes learning how to use Outlook much harder than it needs to be.

It’s not a problem for me, but as a relatively young person in a field full of old people (law offices) I can tell you it is a problem for them.

23

Your argument is based on the assumption that a person has an upper middle class career they can rely on in their 50s, and not everyone does. Good jobs that offer a living wage seem to be disappearing. If you are in your 50s, professional class, responsible with money and have no dependents you can save good money to segue into retirement.

Plus fewer jobs are offering health insurance. I believe in 1993 it was about 75%, now it is closer to 50%. That trend will likely continue, so getting health care through work will be harder and harder.

My impression is that with so many 50+ being kicked out of the health insurance market (who doesn’t have pre-existing conditions at 50) and corporate world, many are holding on trying to wait until 62 and 65 to have social programs help them with health care and income. Now people are trying to move those programs back a few years without offering any help for those who can’t rely on either the public or private sector to help them.

We are tossing people 50-65 under a bus as a society. Changing how we define work and the period of semi-retirement is fine, as long as you can still find a job and health care.

24

Exactly how do you make companies hire a bunch of 67 year olds? …and exactly where are all these millions of current unfilled good paying job openings?

(I have heard rumors that even some 20 and 30 year olds are having problems finding jobs.)

25

No, my argument is based on the thought that a persons lifecycle involves raising kids. As kids leave the house, the expenses involved in raising the kids go away. Two people can live cheaper than a family with teenage boys eating you out of house and home.

Most people will get married in their 20s. They’ll have a few kids. For a few years, raising those kids will involve one person staying home or daycare (for most people) - they manage. The kids go to school and now a SAHP isn’t necessary, so the families income can go up (or they no longer have daycare which has the same effect). You now have twelve years of school that for most families we know - including blue collar families - involve some significant kid expenses - hockey and football fees. Dance lessons. Piano lessons. (Frankly, I don’t know how they do it, but I know they do because my kids are in $200 for eight weeks gymnastics with their kids and I talk to the parents). The kids become adults and you aren’t responsible for those expenses - and if you had your kids at 30, you are 50 or so. You have eighteen years until retirement, and lower expenses. You have two choices - continue to work doing what you are doing for as long as you choose - and spend or sock away the money you would have spent on feeding an eighteen year old - or downsize your life and your job if you feel you are no longer up to the work you do.

Now, what this does presuppose is that at 18 years old your kids will leave home and have some sort of employment that lets them support themselves. I’m assuming that someone whose body/mind is so tired that they can no longer continue to work and has always scrambled to make ends meet is expecting their kids to get through school on their own if they choose to do so.

Health insurance is the huge issue here. We really need universal health care so that people aren’t holding onto jobs simply because they offer health care.

26

There have been other changes to SSI over the years; the cost of living increases, the taxation, and now the retirement age.

So, maybe we can cap benefits while removing the wage base cap?

I admit, I do not make that much money ($107 K, is it now?) even with bonus, so, yeah, I guess I am saying ‘Tax someone else for my benefit.’ But I have been paying into that system since I was 14 years old; I am not asking for a hand out.

We cannot assume people of any color collar can get jobs into their 70s. Even if they do not have health problems, prospective employers will assume they are immanent; if they do keep current with job requirements - new software, new technology, new regulations - prospective employers will assume they cannot.

As for increasing disposable income? Things are not going great for the next generation - I cannot assume they are not going to lose a job, have a health emergency, or just need an emergency loan for a new furnace. These kids grew up in the 80s & 90s; I did my best, but they do not know how to live poor. They are one emergency away from financial disaster. So is my mother in law, who certainly was never a lazy spendthrift. Hell, a lot of the people my age - professionals and still employed - are one emergency from disaster.

I intend to work until I can’t get another job - I just hope that is at least 72.

27

The problem with Social Security is universality - the notion that everyone will work until 65, then retire and work no more and the state will pay them a living wage in perpetuity.

A much better way to do it would be to create incentives for those who are willing and able to work to continue working, and to create more incentives for people to save for their own retirement and make their own choices about when to retire and how much work to retire from.

Eliminating the cap on social security is a backwards way to look at it. You want to tax the rich, then give the money back to the rich. That’s just creating a government middle-man. A better solution would to recognize that the rich are perfectly capable of funding their own retirement, and therefore means-test social security.

In addition, rather than giving everyone the same SS pay, index it to wealth and income. Here in Canada, our social insurance system is solvent. Canada has caps as well - our maximum pensionable income is $48,000 and change, and our maximum contribution is $4,326.30 in 2011, including the employer’s part. However, when you retire, you only get $960 per month for your contributions, which isn’t a whole lot.

But above that, we have all kinds of supplements that people can be eligible for depending on their income and their wealth. There is Old Age Security, a Guaranteed Income Supplement, disability pension amounts, and other benefits. If you are eligible for all of them, you can collect something like $2200/mo, which is a reasonable income for a retired person with full health benefits and no job-related or family-related expenses.

So what we’ve done is essentially to split our government retirement benefits in half - everyone gets one half, and we means-test the other half. An eminently sensible solution. Why should Bill Gates get the same pension check as his maid?

Also, a low guaranteed pension encourages people who are not rich but who are wealthy enough to save for part of their own retirement to do so. And it acts as an incentive to stay in the work force for as long as they can manage or desire.

The one problem with Canada’s system is that there’s a range of income and savings where it makes little sense to save for retirement, because all your savings have the effect of clawing back your government supplements by a nearly identical amount. So the person who saved $100,000 for retirement isn’t any better off than the person who saved nothing, assuming they put their savings in registered retirement savings accounts. To address that problem, we now have tax-free savings accounts which do not count as income when you withdraw the money.

28

The OP talks about government pensions and entitlements but the discussion immediately jumps to Social Security. These are very different things.

This link shows that the SS retirement age is already well past 65. SS retirement age

I don’t understand this fixation on social security as a the problem with our budget. It is one of the few programs in America that is currently paying for itself. If we wanted to talk about actual government pensions and entitlements that is another question. A government employee can retire at 55 with 30 years. Military can retire after 20 years, don’t know if there is an age limit.

29

Social Security is means-tested, isn’t it?

30

In the US the nominal retirement age is now 66. The incentives you mention already exist. You can retire earlier, with a reduced benefit, or later, with an increased benefit. By retire I mean start collecting - you can live off savings and postpone getting SS also, even if not working. And, while benefits are good, most people are going to be making more from their employment, so in that sense the incentives to postpone retirement already exist.

Even if the rich get SS, which might be politically necessary, there is no requirement that they get an amount equivalent to the excess they put in. Though there isn’t anything wrong with means testing at a high enough level.

31

You probably will want to reconsider this response in 50 years or so. You might even want to reconsider it after you’ve actually worked for 10 years. Mental labor can be tiring also.

32

There is a formula for determining social security benefits.

http://www.ssa.gov/pubs/10070.html

As you can see, at some point additional social security taxes paid yields very little in the way of increased benefits. If we use a hypothetical wage earner who earns 12 million dollars a year ($1,000,000/month) for the entire 35 year period (any taxes paid for years other than the top 35 income years simply do not get counted) and subject that entire wage to the social security tax then with a million dollar average income per month.

They would earn about $1879/month on the first $4517/month of average income they earned and the other $994,483 of average monthly income would yield approximately $149,172 for a total monthly benefit of about $151,051/month.

Over their 35 year career, they would have paid $52,000,000 in employer and employee side social security taxes.

There some inflation adjustment that has to occur but assuming everything is in inlfation adjusted dollars, youa re talking about an annual benefit of about 1.8 million dollars a year on taxes of 52 million dollars of taxes collectd over 35 years.

Simply put, lifting the cap would resolve much of the solvency concern surrounding social security.

33

Yeah, basically more people are living to collect benefits and they are collecting benefits for longer. Which is fine but we have to adjust either the contribution side or the plan or the benefits side of the plan. Whether you want to relieve people who are earning money from the burden of contributing more or relieve retiree of the burden of less guarnateed income during retirement is a matter of your priorities. Heck some countries just let their elderly beg in the streets if they haven’t provided for their own retirement (or don’t have kids to support them).

34

I don’t know tons about it, but in some ways yes depending on how you define the term. It is already a progressive system.

SS pays you in a 90-32-15 rate. You get back roughly 90% of the first 10k you put in the system (average annual income), 32% of the next 45k and 15% of the next 41k until you hit the cap. So if you earn 10k a year adjusted, you get about 9k a year in SS benefits. If you earn 100k a year you get about 26k a year in benefits despite paying 10x more in taxes. The biggest ROI comes in the first 10k in income.

Plus SS income isn’t taxed as income unless total retirement income is above a certain point around 35-50k, which wealthier people will be above in retirement.

35

So the withdrawals from tax free registered retirement accounts do not count as income for the purposes of determining other benefits? Then all you have done is created a higher guaranteed benefit, haven’t you?

36

no, its not

37

We have though. Back in 1940 the tax rate was 2% on SS, now it is 12.4%. Plus those of us who are paying the 12.4% tax already retire at 67 instead of 65.

http://www.socialsecurity.gov/oact/ProgData/taxRates.html

I think raising the tax rate (both raising the cap and raising the rate) is the best option because despite life expectancy going up, people aren’t having an easy time finding work into their 60s. And with health care costs growing, benefit cuts may mean people have to avoid paying for medical care in retirement.

SS isn’t that hard to fix. Minor changes should keep it solvent until the 22nd century. Medicare and medical care in general are where the real bankruptcy problems lie over the next 100 years. The shortfall in federal health programs is something like 6x bigger than the SS shortfall.

38

A cap isn’t necessary. The current formula already provides such meager returns for social security taxes by the time you hit the cap that you would have to live well past 100 just to get your money back.

In other words lifting the cap, while increasing the benefit for the rich, will not increase it enough to make up for the additional taxes that they pay. Social security works on average lifetime income but its pretty safe to say that lifting the cap and keeping our current formula will significantly improve social security’s solvency.

39

As Wesley noted, it gets taxed when income is above a certain level, which effectively reduces it.

But my point was that there is no reason not to make any increase in the cap progressive, just as it already is. The claim that an increase in the cap would be revenue neutral for people below the cap are incorrect, and even if they were correct today (which they aren’t) they wouldn’t have to be.

40

An additional 20 percentage points here is actually a 35% increase.