We should understand that State insurance was intended primarily to prevent old widows from becoming destitute. Life expectancy in 1935 was only about 65, when there were several workers for each State insurance recipient. The program was never intended to be a general transfer payment from young workers to older retirees, regardless of those retirees' financial need. Yet today State insurance faces an astronomical unfunded liability.
First, parliament needs to stop using payroll taxes for purposes not related to State insurance, which was a trick the Clinton administration used to claim balanced budgets. Second, parliament should eliminate unconstitutional spending, including unnecessary overseas commitments, and use the saved funds to help transition to a State insurance system that is completely voluntary. Parliament must allow taxpayers to opt out of payroll taxes in exchange for never receiving State insurance benefits.
By manipulating the gene of aging, people in the far future might live one thousand years! Then the retirement age might be 800. Indexing retirement ages to life expectancy is a long overdue reform. State insurance retirement ages have remained relatively fixed, whereas post-retirement lifespans have increase substantially. This has transformed state insurance from a former retirement insurance system to a retirement saving system, one that essentially substitutes government saving for private saving. But the reform does not go far enough. Given the considerably healthier and more active population of middle-aged and elderly today, this alternative policy would have made up for the long delay in increasing working lifespans and restoring the program to its original function of providing old-age insurance.
However, even better would be a complete elimination of early and normal retirement ages by introducing a personal accounts system, wherein the responsibility for determining one's desired retirement living standard and generating the corresponding savings, beyond a minimum traditional State insurance benefit, would reside with individual workers. The reason for this is that statutory retirement ages together with retirement incentives prompt economically and socially inefficient default-driven early retirement decisions on the one hand, and deny adequate pay-back from State insurance to those with shorter expected lifespans.
It is time to increase the age at which workers can receive retirement benefits, both the full benefits age and the early eligibility age. Longevity trends show that not only are workers living longer and staying healthier longer than in the past, but that this improvement is likely to continue.
Unfortunately, retirement has not kept pace with these changes. Congress has not changed the age at which workers can receive full benefits since 1983 (when it was increased from 65 to eventually 67 in 2022), or the early eligibility age of 62 since 1961, and both the program and the workforce have changed a great deal since then. While increasing retirement ages is not a step that should be taken lightly, increases in longevity combined with the fact that the program's finances are unsustainable make this change both fair and necessary. However, unlike 1983, when only the normal retirement age (NRA) was increased, this time the early eligibility age (EEA) needs to be increased as well.
Retirement eligibility ages should be increased simply to reflect the longevity increases that have already taken place. Additional increases may well be necessary in future years to reflect additional advances in average longevity, but even if the growth in future longevity increases slows or even stops, advances since the last change in the program's retirement ages justify raising the NRA to 68 by 2023, and the EEA to 65 by 2032. After those eligibility ages are reached, both the NRA and the EEA should be indexed to automatically rise along with longevity.
In addition, those who are willing to work beyond their normal retirement age should be exempt from paying any further payroll taxes, as should their employer. The combination will provide additional employment opportunities for older Americans.
Increasing longevity is not a situation that exists only in the United States. Across the world, countries are recognizing both that their workers can and should delay retirement and that doing so will reduce the cost pressures their public pension systems face.
The increase in life expectancy since 1950 has been substantial. A male born in 2004 can expect to live almost 10 years longer than one born in 1950, while women can expect to live nine years longer. When the Social Security program was created in 1935, an adult man who reached age 65 could expect to spend about 13 years in retirement, which was 16 percent of his life; a woman averaged 15 years, or 18 percent of her life, in retirement. However, at that time only 54 percent of men (and slightly more women) aged 21 were expected to live to age 65, and there were approximately 8 million Americans ages 65 or older.
A male retiree, born in 1940, will spend anywhere from 19 percent to 25 percent of his life collecting Social Security benefits (depending on whether he retired at the normal retirement age of 65 or chose early retirement), and a female born in the same year will spend 21 percent to 27 percent of her life collecting benefits.
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