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New CBO report – Lower (not increase) the early retirement age!
At one point or another, all the big name politicians have indicated they would support changing the minimum Early Eligibility Age (EEA) rules for Social Security. Obama has said it, so has Boehner. Even guys who love Social Security, like Sen. Harry Reid, thought it might be okay. Many economists have publicly opined that raising the EEA for benefits is good economics, as the average life expectancy is higher than it was forty years ago. To me, the most significant evidence that a consensus is forming on this important issue is the fact that the ultimate supporter of the Grey Panthers, the AARP, came out with its support last year.
I think that all of these deep thinkers are wrong. In fact, a good case can be made for lowering the minimum retirement age from 62 to 60. From the Congressional Budget Office report on the consequences of increasing the Early Eligibility Age (EEA):
If that doesn’t convince you, consider these words:
Budgetary Effects
The budgetary effects of a rise in the EEA in the short term would be different from those over a longer period. Federal outlays would decline in the short term because people would have to wait until they were older to apply for Social Security benefits. Over time, higher subsequent monthly benefits would offset an increasing share of the savings from delayed eligibility.
How is it possible that all of the folks pushing for an increase in the EEA could be wrong on this issue? Intuitively it makes sense. Delaying the age for benefits should reduce expenses for SS and therefore save it money, thus keeping it solvent for longer. It sounds so simple. Why doesn’t it work?
The answer is that increasing the EEA won't improve the finances of Social Security (or the country as a whole). SS discounts the amount payable if early retirement is opted for. It is calculated so that SS is “expense neutral” if benefits are taken at today’s EEA of 62 years versus the higher benefits available by waiting until 64 years.
The following formulas are a simplified look at how this works:
Case #1
Benefits payable at age 62 = $1,000 per month
Average Life / (years of benefits)= 78 / (16 years)
Total life time benefits = $192,000
Case #2
Benefits payable at age 64 = $1,142
Average Life / (years of benefits) = 78 / (14 years)
Total life time benefits = $191,856
The formula that SS uses to discount benefits for those seeking payments prior to their Full Retirement Age (FRA) is quite simple:
The reductions are based on the month of claiming: A benefit is reduced by 5/9 of 1 percent for each of the first 36 months before the FRA.
For example, if a man was expecting a monthly check of $1,000 at FRA, he would receive $810 monthly if they took benefits three years earlier. This simple formula immunizes SS from the cost of those seeking benefits early.
I hope that this discussion proves the point. There is no economic consequence to SS (or to the overall fiscal position of the US) from raising the EEA. Now consider what would happen if the EEA were to be lowered from age 62 to 60 years.
Using the same 5/9th% monthly discount rate, the individual who seeks benefits at age 60 would get a check 13% less than what he would have received by waiting until he was 62 to quit working. Using the formula from above:
Case #3
Benefits payable at age 62 = $1,000 per month
Benefits payable at age 60 = $870 per month
Average life (years of benefits) = 78 / (16)
Life time benefits = $188,000
Note: The $188,000 number above does not take into consideration the time value of money and changes in payments of Disability Benefits. When these factors are built into the equation, the numbers between the various ages of retirement all equal out.
Today, approximately 60% of eligible beneficiaries elect to get their SS checks at age 62 (EEA). I can't’ accurately project how many people would elect to retire at age 60 or 61, if it were possible to get discounted benefits at earlier ages. I think it's a large number.
Of the 3.6mm individuals who will get new SS benefits this year, 2.2mm (60% of total) are getting their checks upon reaching the EEA. If the EEA were lowered to age 60, how many people would take advantage of the change? Given that there are two years worth of individuals who would be eligible for reduced benefits, an estimate for the number of people who might opt-in to early retirement, if given the chance, is between zero and 4.4mm. For the sake of discussion, call it 2mm. That would be very helpful.
What would this do for the economy? It would shrink the supply of available workers. It would happen fairly quickly over the course of the first two years that the EEA adjustments became effective. As older workers leave the workforce earlier, the demand for younger workers would increase. People at all ages (including older workers not seeking to retire) would “move up the ladder” faster. There would be more new job openings for younger workers coming into the labor force.
High unemployment is corrosive to society. It’s particularly problematic when the shortage of jobs creates very high rates of unemployment for young workers. High youth unemployment is the scourge of Europe today. Total unemployment in some of these countries is around 10%, but youth unemployment is over 20%. The situation is similar in the USA. The numbers have not yet reached the levels in Europe, but the trend in the USA is firmly in place. If nothing is done, the likely outcome is for youth unemployment north of 20% in the USA.
Based on the information provided by the CBO, I think it should have analyzed changing the EEA down (as well as up). Lowering the EEA would be neutral to the long-term finances of both SS and the country. It would also open up a few million jobs. Many of those jobs would be entry level positions. Just what we need. This chart illustrates the problem we face. Employment for younger workers is currently at a post WWII low.
I can’t figure out why the CBO didn’t consider the implications of a reduction of the EEA. A team of analysts must have worked on the report for weeks. But they only looked “inside of the box”; the CBO needs to look “outside of the box” to find options for the issues we face.
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Note: The CBO also looked at raising the Full Retirement Age (FRA) from 67 to 70. This is a different kettle of fish than increasing (or decreasing) the EEA. This approach would benefit SS. But it would have a range of negative consequences as well. I’ll discuss increasing the FRA in a separate post. Enough on SS/CBO for one day.
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If EEA is the choice of the person to retire early, as you indicate, I totally agree with you. Persons with high pay jobs can stay and not take the hit.
Many of my friends have started their own business or worked part time. It does reduce the available work force to some extent and right now that is good for incoming workers. It also gives the stressed workers (and few are not stressed today) an opportunity to reduce the stroke and heart attack problems, saving SS med money. Those who already have health problems can exit early.
This could increase the numbers of the aging generation. What is that impact?
If they raise EB to 64 and FB to 68 and compute benefit amounts the same way they do now for 62 & 66, and no upward adjustment in rate past 68, how would that work out Bruce?
That might be true from a purely SS standpoint, but you're taking it as if the monthly benefits can be lowered indiscriminately without second round effects. Especially with the high CPI-unreported inflation those lower benefit receivers are more likely to apply for foodstamps or other benefits in the future, increasing other federal funding costs.
In other words, as usual, there is no free lunch...
It's a worthless exercise. Anyone under 50 can 'forget about it'. If any form of SS still applies 20 years from now it will be means tested. I love your work B.K. and really respect you. That being said I also suggest that you are being distracted by the trees here.
Dat forest is a changin'
If you're not living in a cardboard box, then you won't qualify.
Humans are defacto "legal persons" mortgaged and traded like a commodity.
CAPITIS DIMINUTIO MAXIMA
http://www.youtube.com/user...
Bullshit. Someone on another blog said it best: why aren't mistakes made that ENRICH the American middle class?
Why are the mistakes and deregulations of the past 40 years made in such a way that enrich the top 1%?
What the fuck do you call the housing bubble?
Anyone could've bought in 2000 and sold in 2005 and live in an above water house of similar size right now.
"God, why won't you let me win the lottery?" - Sol
"Sol, meet me half-way. Buy a ticket!" - God
Don't forget all of the new regulations hurt the middle class and small and medium businesses. There are more than 25,000 pages of IRS codes, regtulations, procedures etc. Only the very wealthy and multinational corporations benefit. Everyone else who can't afford an army of tax lawyers ends up getting fucked in the ass.
You know the Golden Rule "He who has the gold, makes the rules" When the 1% make the rules, what do you expect. I just hope WTSHTF they actually don't have the gold.
Their problem is that they have many times the amount of gold that supposedly exists, so they need to keep it hidden to maintain the illusion that gold has value ... but what do they care, they created toilet paper (actually very bad toilet paper) and traded it for gold.
... and in reality it is much less than 1%. The use of 1% is actually to keep the wealthy, but useless to them mollified. The 1% think they are "inside" when in fact they are just dog chow like the rest of us.
Waking up in a world with a multi-multi-generational "service to self" control system is the start of a very good education (and an unintended consequence for them).
A couple points:
1. The OP forgot to include the additional costs for other programs (with a lower SS check, a poorer recipient will get higher food stamp/housing...benefits).
2. Nobody in Washington is concerned with the long term (otherwise we wouldn't see 10% Federal deficits). The people in Washington are only concerned with kicking the can down the road, so only the short term consequences matter--and this case in the short term Social Security expenditures would go up.
Or ...
We could just adopt the Logan's Run methodology and have everyone over the age of 65 report to Sleepshop (book version) / Carrousel ( movie).
In today's "flatter" organisations I don't see a lot of older people blocking advancement of the younger ... In fact there is not so much a ladder as there is a two- or three-step staircase. What you will get with earlier retirement are more hard-off seniors taking what used to be entry-level jobs because they would now be subsidized to a point where they can work at or near minimum wage but will bring more skills to the table than their younger competition. Raising the FRA is the only sensible answer.
When you have 2 things, both going in the wrong direction, they can't possibly work. Disappearing jobs and increasing the retirement age is just the system's way of saying that it doesn't pay off to mooks. People are starting to wise up. We've seen 30 years of people left high and dry by pension plans. The general consensus is don't count on Social Security. Again, Socialism comes up a day late, and dollar short.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
The U.S.A can learn something from the Chinese. In China they get to retired early - at 50s. So they clear the employment way for the young one. Simply put they get rid of the old people ASAP and let their young people to get work ASAP. The old retirees then, while collecting the paycheck, are doing all kinds community works. Or they help out the their working children and take care of their grand children as well.
That's what they called social harmony.
Yes, everyone knows that "Bernie" provides a much more stable platform for retirement.
Prepare to house and feed a large number of doddering bankrobbers.
Can we cut social security and eliminate the home mortgage and 401k deduction? Deal?
When you depend on someone else for your retirement, prepared to be disappointed.
When you finally comprehend the idea that you are dependent on the rest of society, even in the absence of socialists, you may live to see retirement.
I am ok with lowering the retiement age. Lower it to 55, but heavily penalize it after age 62 with steep drop offs in benefits. Hell, lets just wind the whole program down that way and I am being serious. Drop the benefit age to 45 and let people of that age start taking meager benefits for the rest of their natural lives in order to recoup the investment in the shitty program. Cut off the program now and refund anyone in for 10 years or less what they paid. Anyone in for 10-20 can elect to stay in or cash out. Anyone over 20 can elect to start their pittence at 45 or wait till 67 for full pittence. Wind the failure called "Social Security" down.
If you really uderstand what the program was started for, you will also understand why they will not wind it down. It was started under US bankruptcy powers and funded by the banking cartel to keep the US govt (1935). It is the banking cartel AKA fed reserve's way of securing collaterol on it's never ending loan and license for debt slavery on US citizens. That is why they won't wind it down or significantly alter it.
Don't believe me? Go check it out.
http://www.barefootsworld.net/usfraud.html
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Here is how it works. You have signed instruments giving information and jurisdiction to the bankers through their agents. The instruments (forms) you signed include, but are not limited to the following: social security registration, use of the social security number, IRS forms, driver license, traffic citation, jury duty, voter registration, using their address, zip code, U.S. postal service, a deed, a mortgage application, etc. etc. The bankers then use that instrument (document) under the Uniform Commercial Code (UCC) as a contract/agreement. These documents are considered promissory contract where you promise to perform. This scheme involves you, without you ever becoming directly in contact or in contract with the true creditor. What's more, you are never informed as to whom that true creditor is and it is never divulged to you the true nature and the true cause of the paperwork that you are filling out.
If you will examine your real estate deed, you will find that you promised to pay taxes to the corporate government. On property you originally acquired through a mortgage, you will notice that the bank never promised to pay taxes. You did. The corporate government at all levels never promised to pay taxes to the creditor. You did.
In tax and collection problems relating to real estate being enforced against you, you will notice that there is no mention in the mortgage or the deed stating the true nature and cause of the action. Since you have made the promise to perform, you get a bill every year for property taxes. You don't realize that the only way they can bill you for taxes is through your own stupidity of agreeing to pay the tax. You volunteered. They took advantage of you, conning you to promise to pay properly taxes. When they send you their bill, they are coming against you for the collection of the promise you made to the creditor.
Now the creditor on the paperwork appears that it is the local bank. The bank has loaned you credit. The bank hasn't loaned you anything. It is not their credit to loan. This is why the bank can't loan credit. There is a credit involved, but not the bank's credit. It is the credit of the International Bankers. The International bankers are making you the loan based upon their operation of bankruptcy claim which they presume to have against you personally as well as your property. Now, let's say you get a tax bill and you decide "I'm not going to pay it." You will find that the courts and the lawyers and the county agencies are set up to protect the true creditor simply by not identifying the creditor. By not being identified as the true creditor, the international banker can make you a credit loan that has no value in reality.
In the case of real property, he claims to loan you the use of your own property for which you pay a tax as rent. He is allowed to do this because you are presumed by statutory law and the banker to be in bankruptcy. This fraud is not revealed because he does not have to make an appearance in court to present and defend his claim. His name is not mentioned in the case.
Let's say you are not aware of your remedies provided for you within the Uniform Commercial Code (UCC). The UCC provides or allows you to dishonor the county's presentment of the tax bill. You don't pay your tax bill. You, therefore, just sit on it and don't do or say anything. A couple of years go by and all of a sudden you are being sent letters to pay up what is owed or else in a certain period of time, your property will be taken from you and put up for tax sale.
Now here is what is interesting........ If you don't pay your tax bill and they contact you asking you to pay it and you don't do it, they will declare that you are in default. It is based on that default, as provided for in the UCC, that they sell your property for the tax (rent).
However, the county never goes into court to put into the record the identification of the real creditor. And the county does not state the true nature and cause of the action against you (bankruptcy action disguised as a tax action). Why? Because, under bankruptcy implementation, they have developed a legal procedure which is based upon your promise to pay. This procedure provides that they don't have to come to the court to get a court order authorizing the sale of your property. Therefore, the real creditor never makes an appearance in court.
The reality is, you are denied any possibility of appearing in court to exercise your right to challenge the creditor. To ask if he became the creditor under "public policy." To ask if it is under "public policy", just what is the "public policy?" And how did you (as an international banker) become "creditor" to me and everyone else in this country (American people). They don't want you to ask the real creditor (the International Bankers), to produce the documents upon which your personal debt is established. If they were forced to go into court, they would have to produce the deed or mortgage showing you knowingly, willingly, and voluntarily promised to pay the corporate public debt. You did not knowingly, willingly, and voluntarily promise to pay any U.S. Corporate Bankruptcy obligation made in the 1930's.
This would, of course, expose their racket. The fact is, that, there was absolutely no debt connected to you until you agreed to it through their deception and fraud. The deception in a broader sense, permeates the education system and the news media, etc., to sell you on the idea that you are a statutory "U.S. citizen" and "resident of the United States." (INCORPORATED).
Gibberish.
Gibberish.
Nonsense.
Then prove me wrong. Good day sirs.
I see it this way by analogy. I know someone who works for municipal government. He is in a union. I asked him, is the union doing a good job negotiating pay and benefits. Well as good as we want them to, he says. If we ask for too much we might get it this year, and see our services privatized next year. We have learned to demand less, to keep our paychecks.
and for SSN recipients demanding less means they may let you live to a ripe old age, using their medicare system. think about it
We'll see a lot of government services privatized in our lifetimes...probably everything but cops and firemen.
Even here in in uber-liberal Seattle/WA, folks recently voted to have liquor sales privatized, and you're seeing more and more government services (i.e. driver licensing) outsourced to private companies.
Retirement should be mandatory at age 50. Just look at all the jobs that would be opened up for the un-employed and new workers.
Sarcasm, I assume. 50 is not old. Not even close. Since SS wouldn't provide for a proper retirement, cutting off the last 15 years of high earnings would mean the savings rate over the shortened working life would have to go sky high. You'd have a huge drepression until such time as the savings rate of young workers was matched by the spending of savings by the retirees. I'm also betting GDP as a whole would drop, since you'd still have some unemployment, so lower standard of living all around! Good times.
Can we have it apply to elected politicians? We need to get rid of Obama, Reid and Boehner. Can there be a special waiver for Ron Paul?
Studies have been done that indicate people who retire earlier have a higher mortality rate than those who put off retirement (65 or beyond). On the surface, this seems counter-intuitive. My own feeling is that many people feel like they've lost their purpose in life when they retire and have trouble figuring out what to do with all that time. This psychological state may translate into a physical effects (e.g., weakened immune system) which increases mortality. So...having all these retired folks kick off prematurely would also argue for lowering the retirement age--from a fiscal standpoint, that is.
One such study: http://www.seniorjournal.com/NEWS/Retirement/5-10-21Retire55.htm
Oh, wow--yet another cost-saving benefit. Let's don't just force retirement--force the retirees to smoke, too!
Did we separate "people who retire early" (firemen, construction workers, and other physical laborers) with "people who put off retirement" (because they ride a desk and collect orders of magnitude more income than the aforementioned folks) along any other potentially correlated axes before we spouted off? Or do we just like bizarre supposition without basis in fact?
Yet, for many the reduced stress of a job vs the time to enjoy life will extend their life time.
I find it interesting that Social Security (emphasis on Security) analysis is based on physical longevity rather than career longevity. In other words, how silly is it to be talking about raising the EEA when an increasing percentage of people who want to work are losing their primary means of support (a career job) earlier in their life, not later. What percentage of people from your father’s and grandfather’s generations were involuntarily forced out of work and into retirement in their fifties? A lot less than there are today.
That history of employment longevity was due to the very small participation of women in the work force through most of the last century. The rise in the two income families means less job security for both workers.
For example, my dad started working in the steel mills in Chicago at age 11. Was a successful businessman, self employed insurance broker, graduated from college at age 55, sold his insurance business and worked until 87, finally forced from a job he loved as a greeter at Kmart. He always felt that working gave a person a feeling of self worth and that you were contributing to society. I guess that won't be happening any time soon again, although I am 73 and still working, having sold my business and doing subcontract work for the new owner that bought it 11 years ago.
I think you're on to something. I see a lot of older types working at my local Costco. I wonder if it's by choice/fulfillment of working or hardship. I suspect hardship in a few cases...but what do I know?
I'm hoping to work until 70 (33 now), which is extremely rare in my field. I'll be eligible for retirement far earlier (pension - provided they're still around...not too optimistic right now). I love my career and can't imagine being happy without having a sense of purpose via work in my life.
I gave you the plus. Be positive and hope for the best. When it's time, you'll know.
"All these fkn old people are a major problem". Mr. Rothschild.
There will have to be a shut down in the power grid before any politician will be willing to grab hold of the third rail. The breaker hasn't been thrown yet but keep putting ideas out there so the pols have something to think about when the day comes.
Um, just a nit, but in Case #3 the number of years of benefits would be 18. The 188k total is correct.
Tks. Total is correct, years 18.
I re-wrote the damn "cases" about three times. A screw up. Sorry
Benefits payable at age 62 = $1,000 per month
Benefits payable at age 60 = $870 per month
Average life (years of benefits) = 78 / (16)
Life time benefits = $188,000
16 years? it should be 18 years but your math is close enough. The reality is SS will not be around in 20 years. No use wasting brain power on it. As it was stated above, it is everything piled onto SS that is going to kill it. The national debt is not shrinking...
Go through the records and make those responsible pay it back. The legislators produced the problem.
The earliest age you can begin getting Social Security retirement benefits is 62.
The 1983 Social Security Amendments included a provision for raising the retirement age beginning with persons born in 1938 or later, but does not affect the minimum age for retirement, still age 62. You will receive a reduced benefit if you elect benefits prior to your full retirement age.
I wondered if anyone else would catch that little error while reading the article - As usual, I'm not disappointed. Unfortunately, that error invalidates the entire premise of the piece.
How can you expect people, who work in cubicles, which are surrounded by more cubicles, to ever think 'outside the box'.
They are not paid to create, but conform!
Tell that to Andy Grove, of Intel fame.
my personal view is "good luck going up against the AARP" Federal Government. And of course "i hope the AARP gives 'em hell!" Go Ron Paul!
Bruce, that just does not cut it. Poor thinking. Any raise of the ages for retirement should slide the entire scale up, say a 2 year raise would mean the earliest you could "retire" would be 64, not 62, for example. 5 years? 67 for reduced benefits, etc.
However, it's all bullshit anyway, because the medicare/medicaid/socialsecurity/socialsecuritydisability/aidtodependantchildren/deptofeducation/snap giveaway structure is bankrupt.
Moving some numbers around will just crash it a couple of days later. The structure, based on infinite growth, just like the monetary system, cannot mathematically continue.