Miller-McCune.com presented a three-part look at what’s ailing Social Security in February 2008. This is the third of those three parts. Read part I here and part II here.
It’s not every day you hear Dick Cheney quoting Pope John Paul II. But the former vice president paraphrased the pontiff in a January 2005 speech about Social Security.
“As a nation we recognize, as Pope John Paul II has written, that a fully human civilization shows respect and love for the elderly. And a just society ensures that elderly people can grow old with dignity,” the then-67-year-old told an audience at Catholic University. “For that reason our nation established the Social Security system. And that is why, after 70 years, Social Security remains a fundamental commitment of both our political parties.”
Cheney was, of course, making the case for President Bush’s partial-privatization plan, an attempt to radically reform the system by letting Americans personally invest a small portion of their Social Security funds in the stock market.
Despite the best efforts of the administration, the plan gained little public support and is not a serious part of today’s debate. Many economists contend the concept — which dates at least as far back as the 1964 Goldwater presidential candidacy — could be revived in the future, most likely as an add-on program to encourage savings; few believe the public will ever accept the level of risk inherent in the administration’s proposal.
But the gauntlet thrown down — that the Social Security system needs to be reconceived in creative ways — has been taken up by a number of thinkers, from Indiana University’s James W. Anderson to essayist Roger Rosenblatt.
Ready to Rumble
“We’ve got to fix Social Security,” said economist Steven Haider of Michigan State University. “But we’re talking about a system that was created 80 years ago. Does that really match our work life today? My answer is a resounding no.”
Thanks to better nutrition and medical advances, Americans are living longer than ever, with an average life span of just under 78 years (compared to 68 years in 1950). Yet the retirement age has remained relatively constant. A 2004 policy analysis by the American Association of Retired Persons found the average age at which workers claim Social Security retirement benefits has remained virtually unchanged since 1985, at about 63.5 years.
By default rather than design, we are structuring our lives in a rather odd way: working intensely for 40 to 45 years, followed by 20 or more years of leisure.
Haider poses a fundamental question: Does this arrangement truly serve our needs?
Economist Eugene Steuerle of the nonpartisan Urban Institute ponders an even bigger issue: Does it make sense for our society?
Haider first. “I would like to have a conversation on how we should think about people’s work lives in this day and age,” he said. “We are living so much longer, and we are healthy so much longer. I have no idea why we care so deeply about leisure at the end of life but not at any other time of life.”
The economist contends we’ll have to raise the “normal” retirement age, at which people receive full Social Security benefits, from 67 to 69 in order to keep the system solvent. He proposes we then increase it by another three years, to age 72.
Put down your pitchforks: Haider’s plan contains significant sweeteners.
“I’d allow people to take those three years at any age they want, once they’ve been working for 10 years and have been paying into the system,” he said. “There might be a time when you don’t want to be fully connected to the labor force, for family reasons, physical health reasons or mental health reasons.
“If the most important thing to you is playing golf and seeing your grandkids, great — take them at 69. However, if there’s another time in your life when those leisure years would be more valuable to you, I would let you draw on Social Security and get health insurance through Medicare at that point in time.
“You might have a young child at home and want to spend a year at home with that child. At age 35, you might want to go back to law school. You might want to become a missionary in Africa or a beach bum in Baja. I don’t care!”
This sort of flexibility could be an asset to both individuals and society, according to Haider. If everyone was able to take breaks in his or her career, “It would provide huge benefits in terms of gender equality,” he said. (Studies in the U.S. and Europe have suggested that women are penalized, in terms of promotions and potential earnings, when they take time off to have a baby.)
In addition, “This would take pressure off of other social insurance programs,” he said. Rather than increasing unemployment insurance benefits from 26 to 39 weeks during a recession, the government could urge laid-off workers to take a quarter-year of Social Security “sabbatical,” using the time to look for work or get training in a new field.
“If we’re careful, we could do this in a way where we’re not hurting the system at all,” he said. “My intent is not to make Social Security bigger. My intent is to restructure it in a way that recognizes the new realities of the work force.”
Are We Asking the Right Question?
Steuerle similarly insists that we recognize a new reality: the fact that more and more of our wealth is being used to support the elderly. “I approach the public in this way: ‘Do you, as a group, want all that growth going to you, so that in 20 or 30 years, the federal government does nothing with its revenues but supports the elderly population? Or do you want some of that growth to go to your children?’”
Steuerle complained the two parties have spent decades one-upping each other with new and increased benefits for senior citizens, the latest being the prescription drug benefit.
“My question is, is this really the best place to put the money?” he said. “Are the needs of the elderly for increased benefits greater than the needs of our children? We’ve still got a 19th-century model educational system, where kids get sent home to tend the crops in the summer. It’s archaic, and it needs substantial resources (if we are to remain competitive).”
Of course, spending fewer resources on the elderly means we’ll all have to work longer. From the economists’ point of view, that seems to be a given.
“When we retire at age 62 or 63, we do two things,” Steuerle said. “We become dependent upon other taxpayers, and we are contributing less revenue ourselves. A worker who was making $50,000 a year retires. He gets about $25,000 a year in Social Security and Medicare benefits. He’s also contributing $15,000 less in taxes. So a burden of $40,000 is shifted to other people.
“That doesn’t only affect Social Security; it also affects general revenues. Income tax revenues go down. So do state income tax revenues. Along with the increased spending, this starts squeezing other programs.
“If you look at projections of spending, support for children’s programs and education programs start really taking it on the chin. The squeeze these health and retirement programs are placing on everything else is happening now. It’s not waiting until some magic day when it crosses some magic demarcation point, such as when Social Security revenues are less than expenditures. Basically, every year that expenditures rise relative to revenues, you’re squeezing something else somewhere.”
Historian Edward Berkowitz of George Washington University has some sympathy for Steuerle’s position. “Most people take early retirement,” he noted. “It would help our productivity rate, and savings rate, if they would wait. But we don’t really know how to make older people more productive. Also, if we (redirect some of the funds now used for) Social Security, we have no way of knowing that the money would go into productive things. It might go into the war in Iraq.”
Such caveats aside, “It makes sense for people to continue working longer from many points of view,” said economist Ron Lee of the University of California, Berkeley. “The right way to pose the question is: If you want to retire at a relatively (young) age, you should have the option to do that, but you should also realize there is a real social cost, and you’re not going to get the same benefits.”
Making that argument may not be as difficult as imagined. A 2007 survey suggests most American workers nearing retirement age would prefer to gradually reduce their workload rather than abruptly stop. Economists and experts on aging are exploring ways their needs could be met.
Steuerle is optimistic. In future years, “The biggest underutilized pool of human resources in our economy will be people 55 to 80,” he said. “I can’t prove it, but I think we’re going to see a large increase in employment of these workers — larger than many people project. Older workers will be to the first half of the 21st century what women were to the last half of the 20th century.”
He has just one caveat, which serves as a veiled warning to this year’s political candidates: “I find the public is totally willing to engage this issue,” he said, “if they trust the people who are presenting it.”
Read part one here and part two here.
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