Raise eligibility age to fix Social Security

Beginning in 2020, cost is projected to exceed total income, and without changes combined Social Security Trust Fund reserves will become depleted in 2035. (Source: Office of the Chief Actuary, Social Security Administration.)

U.S. Rep. John Larson has proposed tax increases to address the Social Security system’s looming insolvency problem. He recently said, “Yes, they will pay more and they will get more for that extra dollar.” That sounds a lot like cutting off one end of a blanket and sewing it on the other end to get a longer blanket, or it’s smoke and mirrors economics.

Social Security taxes are imposed on a worker’s pay and are usually split so that an employee and his employer each pay half.

Craig Hoffman

The Social Security program was signed into law in 1935, when the average lifespan in the US was only 61.9 years and the age to begin collecting benefits was 65 years of age. That means that many of those who paid into the system never collected a dime because they died too soon.

Fast forward to when the program was modified by Congress to allow women (in 1956) and men (in 1961) to collect Social Security benefits at a reduced rate at the age of 62 instead of waiting until “full retirement age.” By then the average American life span was 70.3 years. This means people willing to accept lower benefits could collect from the system before age 65. They were collecting on average for 5.3 years after turning 65. Attaining the average age at death meant that a person could be collecting from the system for 8.3 years.

In 1983, the age for full 100% Social Security was gradually increased to 66 or 67 for people born between certain dates. This was done to supposedly fix the fund’s potential insolvency issues because outgoing payments were growing too fast. But that didn’t happen.

In 2010, the average American life expectancy was 78.7 years. Assuming that a person elected to take reduced benefits at 62 and lived to the average lifespan, they would be collecting for 16.7 years. If they waited until age 67 to collect full benefits, a person dying at the average age would collect for 12.7 years.

According to Wikipedia, fewer Americans are continuing to work past age 65: “In 1950, it was reported that as many as 40% of Americans over 65 were still employed in some capacity, but by 1980 that figure had dropped to less than 20%. In 1990, fewer than 11% of Americans over 65 were still employed, an all-time low after which the number began to slowly rise again.”

Also, Social Security taxes levied “in dollar terms has increased on the wage limit from $30 to $6,622, a 7.57% annual increase, which is double the rate of inflation between 1937 and 2010.” And between 1937 and 2015 the Social Security tax rate went from 2% on maximum annual earnings of $3,000 to 12.4% on maximum earnings of $118,500. During this time frame, the tax rate has increased 19 times and decreased twice.

So what is happening? In addition to widows, children, the disabled and others who may never have paid into Social Security, the income stream via payroll taxes on employers and employees is going to support aging beneficiaries for far more years than when the program was established. This is driven by advances in medicine that keep people alive a lot longer.

With people retiring earlier, the number paying into the system decreases. It is clear that increasing payroll taxes for Social Security is not as sustainable as making fundamental changes to the eligibility age so that benefits are not available until later in life. Either plan will be unpopular, but the tax increase plan just kicks the solvency issue down the road for a few more years.

The most logical way to fix the funding issue is to, first, raise the “early in” eligible age from 62 to 64 years, reverting to the earlier 3-year gap between partial and full benefits, and also increase the age for both full and partial benefits, and tie it to some number below the average lifespan.

That way, as average lifespan increases, so does the age at which one becomes eligible for full or partial Social Security benefits. If this fixed link isn’t created, our ever-advancing longevity will continue to make the program insolvent — even with Rep. Larsen’s proposed tax increases. The voters and taxpayers deserve a more permanent “fix” to the system than another tax increase.

Craig Hoffman lives in Cheshire.