Congresswoman Lummis Introduces Bill to Gradually Raise the Retirement Age
CRFB would like to give much praise to Congresswoman Cynthia Lummis (R-WY) for introducing a bill to gradually raise both the Social Security full retirement age (FRA) and early retirement age (ERA) to help shore up the program's finances for future generations. The bill, H.R. 867, is timely in light of the recent projections from CBO in their latest Budget and Economic Outlook that the program's Trusts Fund will run deficits from here on out, which has increased concern about its long-term sustainability.
Currently, the ERA is set at age 62 and is not scheduled to change. The FRA, however, is scheduled to gradually rise from 66 today to 67 by 2022. The bill, titled the Retirement Security for Today's Four-Year-Olds Act of 2011, would increase the FRA after 2022 to 70 and the ERA to 65 by 2069. The result would be that children who are four years old in 2011 will have to work until they are 70 to receive full Social Security benefits. Her statement noted that her proposal could close nearly 20 percent of Social Security's solvency gap over 75 years. However, based on estimates of similar increases in the retirement age from the Social Security Administration, we estimate that her proposal could close as much as a third of the long-term funding gap and possibly even a half of the program's deficit in the 75th year.
This is a completely sensible first step in addressing Social Security reform, given continued increases in life expectancy but decreases in the average retirement age (see chart below). In fact, both Congressman Steny Hoyer (D-MD)--former House Majority Leader and now the House Minority Whip--and Speaker of the House John Boehner (R-OH) have noted in the past that Congress should consider raising the retirement age.
Social Security currently faces a solvency crisis. Years of surpluses have accumulated $2.5 trillion in its trust funds--one for retirement and another for disability. However, excluding interest on existing assets (the best measure of its sustainability), Social Security is projected to run larger and larger deficits for each year into infinity, exhausting the trust funds by the year 2037.
Some critics argue that reforming Social Security is not a pressing need, or that it could threaten future generations with lower benefits and support. Yet doing nothing would effectively result in a 22 percent drop in benefits in the year 2037 because receipts from payroll taxes would no longer be sufficient to cover full benefits. In addition, making changes early and gradually phasing them in over time, just as Congresswoman Lummis proposes, is the best way to give lawmakers more options to ensure long-term solvency and sustainability as well as to give beneficiaries time to adjust to any changes that might affect them.
As it turns out, raising the retirement ages is one of the best ways to help encourage people to save more and work longer, helping to ensure income security for older Americans, solvency for Social Security, and higher economic growth from increased capital and labor supply. Andrew Biggs, a former Deputy Commissioner for Social Security, has estimated that raising the early retirement age to 65, as Congresswoman Lummis's proposal would do, could boost GDP by 5 percent and significantly improve income tax revenues, all while strengthening retirement income.
Many of the fiscal plans recently proposed by groups, commissions, and experts in Washington, including the President's Fiscal Commission, have called for raising the retirement age for the same reasons.
Of course, there are appropriate concerns over raising the retirement age regarding those who simply cannot work. Changes to Disability Insurance, Supplemental Security Income (SSI), and/or changes to payroll taxes for older Americans could help some workers cope with higher retirement ages.
Congresswoman Lummis recognizes that this proposal alone won't fix all of Social Security's funding problems, but it's a start.
We commend Congresswoman Lummis for her courage in offering a bill that would begin to solve Social Security's financing problems even though there are political risks to breaching a subject long known as the "third rail of American politics." We hope her colleagues will refrain from taking political pot shots and instead see this as an opportunity to engage in a dialogue towards finding solutions to strengthen Social Security for future generations.