Friday, March 27, 2009

Waddya Mean "I Am Not Going to Get My Social Security Benefits When I Turn 65?”

Even though many people continue to defend age 65 as the Holy Grail of retirement eligibility for Social Security and tell you that 'any politician who dares to touch it will die!', the threshold has already been crossed and is now going up even as you read these words.

If you were born after the year 1938, you are going be older than age 65 to qualify for full Social Security (SS) benefits. It is now just a question of: "How much older?"

If you were born before 1938, you can sit this one out, please…you are safe and don’t have to even think about this ever again. Let the Baby-Boomers fight this one out since that is one thing we are really good at.

Senior Citizens of today, this is not your fight.

In 1983, a very clever, well-intentioned bill was passed in order to ‘Save Social Security’. President Ronald Reagan signed it; Democrat Senator Daniel Patrick Moynihan of New York advocated for it strongly and Senator Bob Dole of Kansas helped push it through. Truly a bi-partisan effort, if there ever was one.

A provisional ‘time-bomb’ was inserted in the bill to start increasing the retirement age eligibility for full benefits to begin in 2004. And to think that no one believes Congress can perform some long-term planning! 21 years into the future, even!

The thought then, which has only been exacerbated today by our increased longevity expectations, was that the retirement age had to go up or else SS would go broke again in a matter of a few decades. We are told that Social Security is ‘actuarily sound’ until the latter part of this century. However, that is not the problem. The problem is that when Social Security is combined with its entitlement cousin, Medicare, those two programs are going to eat up every available tax dollar sent to Washington in the year 2040.

With net interest and Medicaid thrown in, all four massive programs consume the entire revenue pie by the year 2024 or so, just 15 years from now.

Put that into your own personal time frame to see how short of period that is really. You might have: 1) teenagers in your household; 2) kids going to college; 3) kids getting married; 4) grandchildren on the way or 5) you won’t be buying green bananas any longer…take your choice of life situations.

Anyway, in 2004, you had to be age 65 plus 2 months to be eligible for full benefits. In 2005, 65+ 4 months; 2006, 65+ 6 months; 2007, 65+ 8 months; 2009, 65+ 10 months and now in 2009, 65+ 12 months or 66 years of age. If you were born in 1943, you are in the first age cohort to have to be fully 66 years of age to qualify for full SS benefits.

So we have already torn down the Berlin Wall of Age 65 and no one seems to have been too upset about it…yet.

Remember, nothing has changed at all for the eligibility age for Medicare. It is decoupled from the age escalation in SS and remains at 65. Or else any other potential savings would be absolutely stratospheric.

And then the age for SS stays there at age 66 for the next ten years for some reason, let’s call it a “66-year old plateau”. It can and should continue to go up in this interregnum in 2-month increments as it has been for the past 6 years. This is where we can get some significant future savings if we accelerate the increase in retirement age.

And then possibly keep on going until it hits age 72…each month it goes up saves millions and then billions and then trillions of tax and/or debt exposure for your kids and grandkids and beyond.

You still qualify for so-called “early’ benefits at age 62, but at a much lower rate than if you wait until age 66.

(Here comes another ‘notch baby’ issue for those of you who are familiar with that interesting quirk of SS history) This early retirement age has to be increased as well in conjunction with the full retirement age going up or else we won’t save much money because everyone will opt for early retirement.

Why? Because you just never really know when your number comes up, now do you?.

The CBO does not offer hard-and-fast budget estimates past a 10-year time window but they do estimate that the net effect of raising the normal retirement age on a stepped-up basis would save the federal budget approximately 1% of GDP by the year 2050. They also estimate that it could save up to 20% of the total expected cost of the entire SS program alone by 2075.

The expected 2050 GDP, assuming we have fixed the banking system by then, could be anywhere from $35-40 trillion, depending on the continued capacity of the American economy to innovate, grow and thrive. A 1% GDP savings due to a higher SS retirement age would save close to $400 billion to the US budget alone. A 3% GDP savings would be over $1 trillion less that would have to collected in taxes and spent at that time.

It is either accelerate the rise in retirement age eligibility or have your kids pay roughly 40% more in payroll taxes for the rest of their lives, which I doubt they will tolerate very long as an active voting age generation.

Or, one other alternative that no one has really talked about yet is that through some sort of natural law, Malthusian population control mechanism, we all just happen to die the day before we are eligible for full, or early, SS retirement. In which case, all future debt obligations and pressures on our kids from SS and Medicare would evaporate overnight.

“I think I will take the higher retirement age behind Door #1, please, Monty!”[1]

[1] Tribute to one of the all-time great games shows in television history, “Let’s Make a Deal!”, hosted by Monty Hall.


  1. I am 32. born in '77. I have just always figured there would be no such thing for me. I think I would hit 65 in 2042. No way I think we will last that long.

  2. according to a Frank Luntz poll back in the day, more people (40%+) believe that aliens from space have landed on earth than Social Security will be solvent when they are eligible for it. What does that tell you?


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