More than one million French citizens protested a rise in the normal retirement age, which would increase the age from 62 to 64. A similar conflict may be quietly simmering in Washington, D.C., in the United States.
The full retirement age for Social Security, at which employees are eligible to receive 100% of their earned benefits, is gradually increasing to age 67. Medicare eligibility presently begins at 65 years of age. Although both programs suffer financial problems, one Republican plan suggests raising these ages.
The Republican Study Committee budget, proposed by House leaders, is for a gradual three-year increase in the full retirement age for Social Security. According to their plan, anyone born in 1978 or later would be eligible for full retirement at age 70. The proposal introduced last year would not apply to current Social Security recipients or anyone aged 55 or older.
In addition, the Republicans propose aligning Medicare’s eligibility age with Social Security’s full retirement age and then indexing that age to life expectancy.
President Joe Biden urged Democrats and Republicans to stand at this week’s State of the Union speech to demonstrate to Americans that they would not slash Social Security or Medicare. Despite the momentary unity, analysts assert that the Republican budget included spending cuts.
Alicia Munnell, director of Boston College’s Center for Retirement Research, stated that Social Security is a fairly straightforward problem: money comes in, and money goes out in benefits. You can solve the problem in two ways: reduce expenditures or increase revenue, Munnell stated. More importantly, there is no third option, as some have suggested by raising the retirement age, said Munnell.
According to Munnell, increasing the retirement age is a reduction in benefits, and higher retirement age “does not work in the current economy.”
Social Security changes enacted in 1983 paved the way for the current phasing-in of the full retirement age of 67, and age 62 remains the minimum qualifying age for retirement benefits. However, when the full retirement age increases, people who claim benefits earlier will suffer bigger decreases in benefits.
In addition to making a portion of payments subject to income taxes, the Act of 1983 also provided delayed retirement credits of 8% per year for individuals who delay claiming benefits until they reach age 70. The 1983 modifications occurred as the program approached bankruptcy. Currently, the program confronts a comparable challenge.
In 2035, just 80% of payments will be paid from the combined trust funds, according to the Social Security Administration forecasts, unless reforms are done sooner. This has prompted proposals to increase the retirement age once more.
The initial increase in retirement age was, in the words of Teresa Ghilarducci, a labor economist at The New School, a “massive disaster.”
In 1983, the introduction of 401(k) plans had barely begun, and it was hoped that these funds would replace defined benefit plans and cover half of the labor force without a retirement plan.
“That experiment was a big failure,” stated Ghilarducci; the expectation was misguided. Today, a disproportionately large number of people lack access to a workplace retirement savings plan. In contrast to 1983, when elder poverty rates were dropping, they are presently rising, according to Ghilarducci.
They are proposing a 40-year-old strategy that is ineffective for the current economic climate, Ghilarducci stated.
The misconception of working longer
In the last four decades, people were anticipated to live longer and be healthier, allowing them the option to work longer.
Ghilarducci stated that several changes, namely the reduction of mandated retirement ages and the implementation of new anti-age discrimination regulations, led to this view. However, facts indicate that not everyone can work longer.
According to Munnell, college-educated white employees can likely work till 70. However, other groups do not enjoy the same privilege. Low-education groups and ethnic minorities just do not have the sufficient healthy life expectancy to do this, Munnell stated. Therefore, it is discriminatory.
Increasing the retirement age once more may worsen these disparities. Munnell believes that’s as far as you can go regarding the full retirement age of 67, which is now being phased in. According to Ghilarducci, there is a second reason why raising the retirement age again will not work: living longer and being able to work longer are not the same thing.
There is evidence that a rise in the retirement age has not necessarily altered when people apply for Social Security benefits. Most persons who file for Social Security benefits early are still employed, said Ghilarducci. However, many claim Social Security early at a very low rate to complement their meager salaries.
This becomes problematic when they are no longer employed, and their benefits check is insufficient to meet their expenses. This may explain why the senior poverty rate is increasing since Social Security provides the majority of retirees’ retirement income, Ghilarducci added.
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