The current American chronological age inferring expected remaining lifespan system for SS (implicitly connected to encouraged retirement age) has built in inequities. To me it seems that retirement as a phase of life is best considered relative to your expected healthspan, and that some proxy of that would be best public policy.
Actuarially someone like me, higher SES etc., has a significantly longer expected healthspan than a manual laborer of lower SES. Statistically I am more likely to get more out of Social Security relative to what I put in than they are. I’ll take it of course, but I do think there are more equitable systems possible.
I think that each of should be encouraged, by nature of the incentives, to work up to the point that we each have the same fraction of healthy life expected ahead relative to life lived.
Okay hard to estimate expected healthspan, and incentivizing habits that lower it would be dumb. But maybe pegging full benefits age to occupational class makes sense? Someone in a physically demanding job associated with higher rates of disability would qualify for full benefits at an earlier age than a higher SES individual in a less physically demanding disability associated occupation. This both as likely to experience less divergent years of healthy retirement, and each of course able to continue working if desired with the same incentives built in as now, for the same number of years after their different full retirement ages.
Ignoring the political impossibility of getting this done: would it be fairer?
Speaking just to the finance side, not the health or fairness or public policy issues …
I’m not sure that’s quite so true.
The SS payouts are highly progressive. Much more so than are income taxes. Someone who earns the minimum wage over a full career will receive a monthly benefit roughly equal to 90% of their pre-retirement monthly wage. Someone who earned the SS maximum every year over a full career will receive a monthly benefit roughly equal to 25% of their pre-retirement monthly wage. For sure 90% of a small number is fewer dollars each month than 25% of a much much larger number. But relative to their wages, and hence what they put in, the low earner is getting back 3.5x as much each month as is the high earner.
But wait, there’s more. A portion of SS benefits can be taxable depending on what they call “combined income”. There are three buckets: 0% is taxed, 50% is taxed, or 85% is taxed. Someone from the minimum wage world will not break into the 50% tax bracket and will in effect keep all their SS benefits. Someone receiving the SS max benefit for their SS max annual wages comes close to breaking into the 50% bracket based on SS income alone. With any decent pension or IRA or investment, they’ll be in the 85% bracket. Which subjects 85% of their SS benefit to ordinary income taxes at their ordinary income marginal rate. Let’s say that’s 22% which is a common bracket for comfortable but frugal retirees who may also have some tax-exempt income. 22% * 85% = ~19%. 19 percent of their SS benefits go right back out to the taxman. That reduces their ~25% of prior earnings to ~20%. The lowly laborer is receiving 4.5x better ROI on their contributions than you are.
Let me stop and say I have no problem with this arrangement. It’s meant as a pro-social form of economic leveling and it’s a darn good thing we have at least some of that in our country. My only point here is to ensure we understand the difference in monthly payout as a percentage of prior wages (and therefore prior SS contributions).
For simplicity, let’s pretend the FRA for SS benefits is still 65 as it was for decades. I know it isn’t. let’s also pretend there is no inflation and hence no annual COLA increases. Just trying to stick to the barest bones example.
Now if both the min wage and the max wage workers retire at age 65 and are struck & killed by a bus the next day, they both get $0 lifetime payout; sucks to be them. And for sure, the longer they each live the more they each get. Lifespan is finite. But relative to their contributions, the max wage worker has to live 4.5 months for every month the laborer lives. And 4.5 years for every year the laborer lives.
I have no doubt that the post-retirement life expectancy of minimum wage laborers is shorter than that of white collar SS max earners. I wonder whether it’s 4.5x shorter.
Switching to the rest of the topic, healthspan and equity and whatnot I certainly agree there’s a darn good moral / ethical case for what you suggest. I do know some countries have different state pension retirement ages for men and women. Other countries have sliding scales of retirement ages for various occupations. Which largely reflect historical degree of unionization in those occupations, and also how many years ago that occupation was a significant fraction of total employment.
The ideas might be noble, but capture is a big problem. For sure if any politician in one of those countries wants to find other work, just suggest that one of the now-favored groups with a low retirement age ought to work a few more years; after all, due to increased workplace safety and machinery, they’re not as broken down as were retirees in 1965 when the retirement age was last updated. Cue revolt.
This is true, but its complex when you add in added life expectancy in retirement. I think life expectancy at 65 is about 7-10 years longer for the top SES cohorts than the bottom SES cohorts (roughly mid-70s vs mid-80s, I think). FWIW, I believe a sizable chunk of that 7-10 years is due to education having a negative correlation with smoking rates.
Someone who paid full taxes on 184k a year for 40 years would pay $912,000 in taxes for SS in between their own taxes and employer taxes. In return they’d get $5,100 a month assuming the retire at full retirement age of 67.
Meanwhile, someone who made $15,500 a year for 35 years would pay $67,270 in SS taxes over their entire career, and get $1,161 a month.
So the higher SES person would pay 13-14x more in SS taxes, and get a little over 4x more benefits per month. So even if the higher SES person lives longer, the poor person comes out ahead. Which is good, taxes should be progressive.
Plus as you said, there are progressive income taxes on SS benefits. There are also progressive taxes for medicare and higher income retirees.
I’d be open to the idea, but isn’t this what SSDI is for? I guess for me, I wonder if expanding the SSDI program would be a better way to achieve this goal rather than setting different full retirement ages based on education and SES. I’d be open to expanding the SSDI system and making it easier for people who work in physically demanding jobs to quality.
Thing of course has to include that the higher SES individual can and often does delay starting. Maybe even to 70. While the laborer is worn enough to retire at 63.
Statistically from there they may each live on average another 14 years. But the higher SES man’s payout (I used doctor as my stand in) is boosted because he waited. And the laborer’s is cut because he had to retire younger.
I actually trust Claude for this number crunching and using those ages with second highest quintile vs second lowest for lifespan it resulted the net return on contribution as:
Doctor
Laborer
SS taxes paid (employee share)
$195,300 (35 yrs)
$92,070 (45 yrs)
Net surplus (benefits − taxes)
$464,449
$115,074
Net gap
$349,375 doctor advantage
Benefit per year of career
$18,850
$4,603
Return-on-contribution ratio
4.1x doctor
But again focusing on healthspan - the doctor is likely to have over 11 of those 14 years disability free. The laborer’s retirement is likely only 8 to 9 years. Lifespan from those ages may be the same; healthspan is not.
Politically more possible. But it seems to often be an adversarial process with investment of energy and more to prove eligibility. Not cost necessarily in dollars but still costs paid.
See, I don’t think I agree. That’s penalizing success in many ways. You know it wouldn’t just be incentives; there would likely be a fair degree of mandatory stuff in order to get it to work.
I’ve put in a lot of effort and money to ensure that I can maybe not retire early, but certainly very comfortably. And I’m starting to look at getting/keeping myself in better shape so that maybe I’ll get ten years or so of proper retirement before the wheels come off physically. I don’t see why I should be penalized and forced to work longer while others who haven’t made similar choices get to retire earlier and I have to effectively subsidize that.
Life isn’t fair, and it’s not the role of government to enforce or even incentivize that sort of fairness. Better to be fair in what everyone gets from the government, and leave it at that.
This looks like a fairly technical discussion, to which I am probably not qualified to contribute very much. But selfishly, I look at this as it would have affected my life. I’m not sure I’m understanding that completely, but it looks like I would have had to work until a higher age in order to get full retirement benefits? I had an office job, with nothing about it, except possibly for its sedentary nature, that would negatively affect my life expectancy; and I think I reached the max contribution limit every year. It was not a job that I was attached to, in the last 5 years of it, and I was working in a dying industry where, if they had known I was likely to work to a later age, there was an increasing chance of me being laid off before my retirement age. In any case, I was so glad to leave that I left 10 months before full benefits age. I felt like a guy who was released from prison early for good behavior.
So am I off the mark in thinking that I would have been worse off under a scheme like this? And is that supposed to be something I embrace because it’s somehow more fair?
If anyone wants to do a deep dive, here is a Dutch study that asserts the OP. Apparently some EU countries do this with their pensions.
In the introduction it acknowledges the difficulty in determining which occupations should qualify. I haven’t gotten very far, but I think they are proposing to use actuarial data as the criteria.
The study takes it as point of fact that it is fair to vary based on occupation which I’m not convinced by. If the difference in healthspan is 1-4 years, that’s significantly less that the 4.5x that @LSLGuy calculated.
I think it might be more practicable to have an across-the-board default of raising standard retirement age to track increases in average lifespan and healthspan. And then put in some customized carveouts for groups that haven’t benefited as much from the lifespan/healthspan boosts.
I have no problem personally with the fact that the generation before mine got full SS benefits starting at age 65, and I won’t get that till 67. Because yeah, improvements in medical care have made being old a lot less punishing proposition than it used to be.
(Shoot, based on my parents’ and grandparents’ experience I never even expected to have all my own teeth past age 60, or 45 for that matter. Trading two more years of employment for no hassles with dentures and bridges and root canals and and and? Hell yes I’ll take that deal. Throw in avoiding hip replacement and diabetes and I’ll happily work till 70!)
As I mentioned in the other thread, though, I think there needs to be some thought about the best ways to use older workers more effectively in the workforce. I like the notion of including options for some sort of “gap years” late-career-exploration jobs, sort of bracketing the early-career adventure jobs like Peace Corps.
In particular, I think younger-old workers should be encouraged to taper out of employment with a part-time stint in geriatric-care support of some kind.
Advantage A: the “public interest watchdog” aspect I mentioned, as younger-olds have a strong incentive to help ensure that geriatric care works well. Advantage B: workers learning about how geriatric care operates before you need it yourself.
Yeah, that bit of evilness is die to Reagan cutting taxes for his millionaire cronies.
Yeah, altho my “best practices” method of fixing Social Security is simply taking off the cap on taxable wages, I am still in favor of slowing raising the age for Social Security benefits.
Actual career physician start at high wages is after college, medical school, and residency of variable length. Manual laborer low wages that start at 28 and in the example retire 63 for cause. I had the doctor working, or at least not starting to draw, until 70. Still Claude did overestimate how old when most doctors start real career. I missed that! It does not change the bottom line conclusion recalculating much though - still 3.7 times net for the doctor.
The OP explicitly accepts that politically it would never happen, so keep with the hypothetical that it would be incentives. The disincentive is limited to a later age as full retirement age and pushing the age of maxing out benefits the same period of time.
Consider that Social Security is in fact insurance, longevity insurance. A person who statistically is likely to make a minimal insurance claim, not cost the system too much, because statistically shorter lifespan and retirement often for cause at lower payout level, and one who statistically will cost the system more, longer lifespan and healthspan, at a higher monthly payout. That simply is not “being fair in what everyone gets …”
Yes. Easy for me to say knowing it definitely won’t happen, but if we care about equity only when it doesn’t cost us anything we aren’t really caring about much?
Thanks for the article @CaveMike - I will read through it!
Possibly a simple (but still politically impossible) means to approximate my proposal is a means test that pegs FRA?
Parsing help requested: were you intending to concur that you’re “in favor of slowLY raising the age for SS benefits”, or did you literally mean that you think the government’s current policy of gradually raising the full-SS-benefits age should be slowed down?
How does it map against @LSLGuy 's numbers though? I’m not sure that Claude considered the tax implication? If healthspan is 1-4 years longer, that doesn’t offset the 4.5x difference.
I thought this was a really good point.
Moving the retirement age back (whether across the board or only for some occupations) doesn’t address the issue that older workers struggle to stay employed. For the examples of countries that apply this in the EU, they have much stronger worker protections.
It did not. Another bit I missed. Adding that in, again not doing the math myself, it reports:
The tax and IRMAA layer is a significant equalizer — but not enough to flip the structural inequity. The Q4/Q2 ratio collapses from 3.66x to 1.97x once you account for everything. The physician’s $421k post-payroll-tax surplus gets hammered down to $219k. The laborer’s $115k barely moves to $111k.
Yes a good point. The impetus for this thread was a consideration of lower birth rate globally leading to a shortage of workers … but even if such will be the case at some point, if, it is not currently.
Addressing inequity is not the same as punishing those who are currently privileged: you are not in the hypothetical being punished nor are you guilty of having done anything wrong,
But however you cut it the average lower skilled laborer is currently getting much less out of the social security insurance system compared to what they put in compared to the average more highly paid knowledge worker: there is no way to “win”; the house is stacked against them. Even with the very well noted offsets listed by @LSLGuy.
On average that individual will die younger, has a shorter after 65 life expectancy and even more a shorter healthspan. And that variance is increasing.
They often have to retire younger and given the shorter expected remaining years of life that might be the best choice to max their payout but they get a lesser payout each year as a result.
The other folks with shortened lives are getting penalized now.
This is a form of “When you’re used to privilege, changing to equality feels like unfairness”.
Now I’m in your same boat too, and struggle with how to think rightly about all this myself. So I don’t mean this as a dig at you personally; you’ve just clearly articulated what lots of mainstream decent people already think.
Life is inherently unfair. But how much we want our society, both private economy and public government, to glory in the unfairness and amplify it versus deliberately push back against it is a legitimate question of public policy.
IMO we’d decide those big issues first, then dig into the details of which things to tweak how. Rather than random ad hoc changes here or there and some vague but unsettled notion of “how far is too far”.
Incoherent public thinking, or worse yet zero public thinking, leads to incoherent policies. Or worse yet, no policies at all, just the Ouija-like outcome of 1,000 vested interests all in a scrum; each in pursuit of naked selfishness for their personal cause.
Sure, but what is “fairness” in this situation? Equality of opportunity or equality of outcome?
That’s the real question at hand here. The current system largely has equality of opportunity- you pay in, and you have the same opportunity to get paid out over time.
Equality of outcome is a thornier question. The implication to me at least, is that everyone should get the same payout or the same percentage of their life retired, regardless of their choices.
Hypothetically speaking, why should someone who slacked off in school, ended up in a physically demanding job, didn’t do well at it, and chose not to save for retirement get the same as someone who did none of those things? That guy basically chose poorly at every stage. Having a shitty retirement is the natural consequence of that. Why shouldn’t he suffer that consequence?
The premise that our current system has anything close to “equality of opportunity” is disconnected from reality.
Illustrating with myself: I worked hard to accomplish what I have accomplished in my life. It wasn’t just given to me. AND I am a huge beneficiary of intersectional privileges. (I can list them if you want.) Someone without my privileges would be less likely to have the same work have had the same payoff. Heck part of my privileges include the family system I was born into that pushed me to work hard in certain ways and enabled me to do so, the expectations that I would because of various identities I happen to have. None of this takes away from my being rightfully proud of my track record, but I’d be an idiot to not recognize that my privileges amplified my efforts. And idiot is not one of my intersectional identities.
I am not looking to create equality of outcomes; but less disproportionately unequal outcomes seems like a reasonable target, given the lack of equality of opportunity.
