One issue that President Obama's National Commission on Fiscal Responsibility and Reform will inevitably consider is an increase in the Social Security retirement age, most likely from age 67 (the current age for those born in 1960 or later) to age 69 or 70. Many of us in the actuarial community have advocated increasing the retirement age as a way to help address the program's financial challenges, and there are three compelling demographic reasons for such a change.
First, Americans are living longer -- a lot longer.
Today, the average retiree lives about 45 percent longer than a retiree did in 1940, and the actuaries at the Social Security Administration are projecting that retiree life expectancies will continue to improve in the years ahead. As life expectancy pushes upward, the Social Security program's costs will very likely exceed what its scheduled financing can support.
For two decades, Social Security's trustees have reported that the system is not in actuarial balance. Their 2010 report states that without corrective action, the program's trust fund is expected to be exhausted in 2037, and thereafter tax revenue will be sufficient to finance only about 75 percent of scheduled annual benefits. Demographic factors, such as improved life expectancy, are a major contributor to these financial challenges.
Second, Americans can work longer.
Because of the transformation of the American economy, work is less physically demanding. Nevertheless, many still work in jobs that are physically demanding, and so there are significant groups of American workers who may not be able to work longer. But suitable adjustments can be made to labor and disability policy to protect these vulnerable workers. At the same time, the transformation from a manufacturing to a service-based economy cannot be ignored. This transformation has made it easier for many older Americans, who also have benefited from the general mental and physical health improvements that have accompanied extended life spans, to continue working. Despite these improvements, and as the percentage of workers' lives spent in retirement continues to increase, the number of years in the workforce has remained relatively constant.
Third, aside from federal budget concerns, there is a need for Americans to work longer.
In the 1970s we faced a demographic dynamic in which a large group of younger Americans (baby boomers) needed to be integrated into the workforce. This inevitably involved some dislocation of older employees. To mitigate the impact of these changes, corporate retirement programs and Social Security benefits were modified to encourage older employees to consider retirement. We now face the opposite problem, a robust older workforce with a smaller cohort of younger workers to replace it. While we currently face economic difficulties, over the long term, as we return to a healthier economy, the demand for experienced labor will prevail. In this context, it is in the interests of all those who can continue to work to consider doing so.
Given these three factors -- increased life spans, increased working capabilities, and a structural demand for experienced labor -- the demographic case for an increase in the Social Security retirement age is compelling. We need to recognize that not just life span, but the nature of work and of American life have all changed since the retirement age was last amended in 1983.
Similarly, if older workers will be asked to give up some years of retirement, it is time to consider some long-ignored proposals regarding the transition from work to retirement. Certainly, phased retirement should be more readily available. But also, incentives to work longer could be added through tax policy and Social Security benefit calculations.
If it's true that many Americans view work as a drudgery from which the only relief is retirement, then let's encourage labor, and an attitude toward it, that is more fulfilling. An increase in retirement age can provide an opportunity to begin a dialogue around these important issues.
Tom Terry is a consulting actuary and the chair of the American Academy of Actuaries Public Interest Committee.
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