The Problem of Early Retirement
I have a short piece in the New York Times about those who draw Social Security benefits before the "normal" retirement age--traditionally age 65, raised in 1983 to 66 this year, and rising to 67. However, in the early 1960s Congress allowed people to begin drawing lower benefits as early as age 62. These days, two thirds or more of those on Social Security begin drawing benefits well before the normal retirement age.
The point of my article is that raising the normal retirement age is no panacea for Social Security's financial problems. In fact, it really makes no difference when people retire because benefits are actuarially adjusted so that theoretically everyone gets the same lifetime benefits. Indeed, benefits continue to rise 8% per year past the normal retirement age because of something called the delayed retirement credit. Therefore, if the goal is to improve Social Security's finances, raising the normal retirement age won't do much good because 62 has become the de facto normal retirement age. We will have to raise the early retirement age if we want to save money this way.
There are two other points I didn't have space to make that are important. First, I think many people who take early retirement foolishly have a use-it-or-lose-it attitude; they don't realize that benefits rise the longer one waits. I think many also believe that their benefits will be bumped up when they reach the normal retirement age. But the lower benefits one gets when taking early retirement are for life. Consequently, I fear a crisis of poverty among the very old in the not too distant future.
Second, there is an important cost associated with early retirement in the form of restrictions on earned income. Social Security benefits are reduced $1 for every $2 earned above $14,160. That's like a 50% tax that discourages people from working once they have decided to take early retirement. I think this also contributes to poverty among the elderly. The earnings test was abolished a few years ago for those above the normal retirement age. But as the normal retirement age rises, it impacts more and more people.
In short, any debate over raising the age to qualify for Social Security must include discussion of raising the early retirement age. Personally, I think 62 is too early for anyone in good health to retire.
Retirement
A lot of people that I speak to are in the camp of thinking that " if I start collecting early look at how many years I'll collect and how long it would take to make up the extra money I could have made by waiting "
Just for simplicity sake lets say they got $1500 a month at age 62. Lets say at 67 it's $2200 ( again I dont feel like doing the actual calculations right now ). So that person looks at it saying "ok I can get 18k a year for 5 years ( 90k ) whereas if I wait till 67 and get $2200 a month that's only $8400 a year extra and it will take me roughly 11 years to reach the point where I would have lost out longer term and by then I'll be 77 and who knows if I'll be alive then. I'd rather have the money now."
I see this all the time.
You also have the people who thru job losses and getting jobs at lower wages or forced early retirement and the need for extra income need to do this. Because so many people had lived above their means for so long or just didnt save enough.
For the wealthier this isnt as much an issue but again that's a much smaller segment of the population
But I agree with you that the early retirement age needs to be raised to the 65-67 area
Also
Just read the piece in the times and unfortunately they put the piece by Monique Morrissey before yours. I read that and then I wonder who she represents and so I see that her group has pretty much every single union in the country on their board of directors and then her opinion made all the sense in the world to me.
So if she wants me to pay more Social Security tax than I already do for the greater good then I'd like to know how she feels about making all medical insurance benefits from employers given to employees and I mean everyone taxable as income.
Hmm.
race and early retirement
Health is racially disparate, hence W was reamed for stating that privatization was a great deal for blacks and I would guess mexican americans.....in that vane, dropping early retirement would pour salt on the wounds of those contributing 13% of their income for 40 years and then leaving no inheritance as they perish so early.
No direct correlation
I am a member of a trade union (which is significantly different than being a member of a shop union or a government-sponsored union).
Each and every job that I have in that 60,000 hour career will be temporary-- from three weeks to thirteen months. I go where the business agent sends me.
The last job I was on (which was outside of the jurisdiction of my home local; ie as a traveler), I was paying out around $550 a week for insurance.
After 150 hours worked, my insurance kicks in. AFTER--
At the end of the calendar quarter, the local whose jurisdiction I work in transfers the monies to national. At the end of the calendar quarter following that, national transfers the monies to my home local, and then my insurance kicks in.
So, I've got 4 to 6 months (if my insurance has lapsed) to wait for insurance.
I don't know the current numbers, but as of about 5 years ago, the payout for full retirement (30 years) was around $3000 a month. I can take an early retirement at 20 years for about half that, or at 25 years for 3/4 of that.
All of that comes out of the benefits portion of my wages.
And make no mistake about it-- these are wages.
Whenever the local gets a raise, they have a special order of business to vote where the money goes to.
They could have voted to have it on the paycheck, but they voted it into benefits.
Taxing benefits can only result in more money being placed on into the 'wages' portion and less into the 'benefits.'
As far as the employer is concerned, the benefits are paid in straight time, where the wages are subject to overtime rules.
The prudent thing to do would be to increase the co-payment to reduce the pay-in costs to avoid the excessive taxation, with more money on the check, and effectively increasing the overtime rate.
Early Retirement
I can't speak for everyone right now, but I believe that a lot of people "retiring at 62" are unemployed and can't get a job. I believe that the unemployment rate for those 55 and over is probably the highest in the post WW II period and that many of the long term unemployed fall in this category. Age discrimination particularly affects this group.
I can understand the point
I can understand the point for people who have been economists all their life, or engineers or statisticians, but 62 is an entirely reasonable age for someone to retire from manual labor employment, or blue or pink collar employment. And then, you aren't taking age bias into account. It is all but impossible for people who are 55+ to be hired. Try getting a job as a sheet metal worker or a server or a flight attendant or a firefighter at age 62.
And yeah, there sure ought to be some union representation at the Catfood Commission. After all, unions represent blue collar workers, and no one else seems to be thinking about what kind of work the majority of people *actually* do to earn their social security. Not all of us, nor most of us, have a cushy job setups pontificating on all of the big issues. How about you ivory tower dwellers, Mr. Bartlett, with all due respect, step out of your bubble for a moment think about what you are proposing?
Some mistakes in describing how Social Security works..
Bruce,
I think you misunderstand a few things about Social Security's financing. First, raising the Early Retirement Age does basically nothing for Social Security's financing. That is precisely BECAUSE of the actuarial adjustments -- in other words, raising the EEA just means people will begin collecting higher benefits later (and therefore get the same lifetime benefits). To the extent it encouraged people to work longer (and it surely would), raising the EEA would bring some more revenue into the system, and it would also help the economy and increase income tax revenue. But in terms of Social Security, it actually scores as an option which costs money: http://www.ssa.gov/OACT/solvency/provisions/charts/chart_run315.html (this is partially because of the projected increase in collection of Disability).
Raising the NRA, on the other hand, basically operates as a cut in annual benefits for any given age or retirement (since your actuarial adjustments will be larger). As a result, some proposals to gradually increase the age could close as much as 1/4 of Social Security's long-term gap.
Now this isn't to say we shouldn't raise the EEA. In fact, I think we should increase both the NRA and EEA. But understand that they do different things -- raising the NRA is what helps the program's finances, raising the EEA is a more powerful work incentive and a way to protect people from actuarial adjustments severe enough to leave them in poverty at old-old age.
You also misunderstand how the retirement earnings test works (as do many near-retirees, which is why it is a problematic policy). The test does NOT reduce annual benefits, it WITHHOLDS them -- deferring them until one stops working or reaches the NRA.
As the SSA website explains: "If some of your retirement benefits are withheld because of your earnings, your benefits will be increased starting at your full retirement age to take into account those months in which benefits were withheld."
So the retirement earnings test actually REDUCES poverty, it doesn't increase it. Between the EEA and NRA, it only applies if one earns over $14,000 or so. Since the poverty line for an individual is closer to $10k or $11k, it therefore won't general increase poverty for the young old. And for those over 66 (the current NRA), it actually results in a HIGHER benefit than an individual would otherwise get, so it decreases poverty. Think of it as partial protection against what you describe as the "use-it-or-lose-it attitude".
(The only way the earnings test could increase poverty is by discouraging those who do not understand it from working -- and therefore earning private sources of income. That doesn't happen some, which is why we need to at least make sure this test is better understood).
early retirement
I know two men who retired at sixty-two even though both would have preferred to keep working. They had both lost jobs and were unable to find anything else. If we want people to stay working longer, we might have to enact stricter age discrimination laws. Studies show that people over fifty-five have the hardest time finding employment.
Early Retirement
Not with this Supreme Court
early retirement should be encouraged
Our major problem is not social security solvency. It is unemployment. Retirement opens jobs for younger people.
She We Encourage Early Retirement?
The computer revolution has a nasty habit of killing jobs through vastly increased efficiency and maybe we should take advantage of this, lower the work week and encourage early retirement to open better paying positions and free up jobs instead of trying to eek out a few more years or week hours from each worker.
There really is less work to be done, there has been since the 30's and its high time to deal with that.
early retirement
While sure it can open new jobs it's basically someone getting promoted to the new positions assuming that retiring position isnt eliminated and assuming the position that the person taking of the retiring person doesnt have his/her old position eliminated. I see a lot of that happen
For couple's 62 is the right age for SS
For a couple, the lower paid spouse frequently collects SS at 62 and then at NRA gets a bump up to the higher income spouse's retirement income as long as the higher income spouse delays SS until the NRA.
The wage offset doesn't matter if the higher income spouse isn't working and the lower income spouse is very low income. Savings are used to supplement income until the NRA is reached. This strategy maximizes retirement income.
So taking SS at 62 is rational for a significant segment of the population.
early retirement
When I was much younger, the choice was be unemployed or be a student. In these modern times, the choice is be unemployed or be retired. I retired at 62.
Early retirement
I'll be 62 in April. I've been unemployed since October despite applying for over 200 jobs (yielding 6 in person interviews and no job offers). Despite almost 40 years experience in a professional/managerial capacity and a (long ago) Ivy League college degree, my job prospects are limited.
I expect to start receiving Social Security when I reach 62 because it appears unlikely I'll be able to get a job - maybe a greeter at Walmart or a fry cook at McDonalds. I don't think my situation is all that unusual in these times.
lower retirement age
I'm 62 and will wait until 70 before collecting SS. I'm fortunate that I also have a pension, a Roth IRA, as well as a 457 plan bridging the gap. That said, many people are not this lucky. I'd just as soon see early retirement lowered to 60 (paid for by removing the FICA ceiling). Since the economy appears to work for the benefit of the very rich, what other choice is there? There are consequences when you sacrifice full employment for low inflation. Since we're in a thrall to this conventional wisdom, we might as well hand over the loose change to the victims of it.
Unemployment
I think the comments referencing unemployment as one of the factors forcing people to retire at sixty two are spot on.
My mother works for an agency that counsels the elderly on financial matters, and she tells me they are seeing more and more people every week wanting to know if retiring at sixty two is going to hurt them financially. Most of them would like to continue working, but there are simply no jobs for them.
Retire at 62
Rapid Technology changes, M&A activity encouraged by the government tax policies and the overall lack of new job prospects past the age of 55 except consulting in your prior field if it still exists are just a few reasons we are seeing early retirements. That being said I retired at 62 and love it, as my time is filled with attending various classes at the local college and contributing time to various public service needs. While Bruce thinks that someone in good health should not be allowed to retire at 62 and be shackled to a 40 Plus work week except the wealthy of course, his thinking reflects the politically connected economic thinkers today. Shorter work hours, early retirement will not generate the kind of consumer who buys a new car every three years or Mac Mansion but it will create a better life style focused on local interest and concerns.
This statement: "Personally,
This statement: "Personally, I think 62 is too early for anyone in good health to retire" is better framed as "Personally, I think 62 is too early for anyone in good health to expect to receive transfer payments from his or her fellow citizens".
If public policy is going to
If public policy is going to encourage longer working years, than the system is going to have to provide people the opportunities to do so. Many people would love to work past 62, though our infrastructure isn't setup to do it. Corporations drive "early retirement" and full time options do not abound for people over 62 (or even 55) - even prior to the Great Recession.
early retirement
The people I know who have "opted" for early retirement were forced to do so by their employers. Older workers are at the top of the pay scale and companies save money by laying them off. People are not as foolish as you believe. They know that waiting until 65 is better but are not given the choice. Raising the early retirement age may make sense to those for whom unemployment is an abstract concept, but for the older worker it is a lifeline.
Friction in the job system
One of the weaknesses of conventional economics is that it assumes the unemployed can easily retrain, pull up roots, and move to some area where jobs are more plentiful. On the contrary, there is "friction" that is a real part of human life that restricts this.
I live in rural NC where the textile industry has been declining since long before the current recession. Most 55 or older laid-off textile workers either graduated from high school or dropped out. Such workers are not going to re-train (indeed, will not find it easy to re-train) and move to some far-off spot on the potential of finding employment. Blue-collar workers are never as mobile as professionals, like economists.
If these people are not to take Social Security at the earliest age, they must be able to find jobs and those jobs have to be where they are. This is not an easy problem to solve.
Love your Job?
Another factor why people retire early. They hate their job. Very few companies realize that their employees are their greatest asset. Very few.
Sounds wonderful, Bruce...
Unless you happen to have a physical job, like carpenter. I'm already having serious difficulties at 60, I doubt I'll be able to keep it up past 62.
It really doesn't matter though, with housing the way it is, I may be unemployed until I retire anyway.
Two thoughts: first, one
Two thoughts: first, one argument for later retirement is already being hurt, by the fact that the current generation heading for retirement is in many ways not quite as healthy as the generation that is already there. Many of the
Baby Boomers ended up struggling more than their parents did. Thomas the carpenter is but one example of what is happening. As we restructure work in the future, I will be advocating for the right to work - as we age - that is not as physical in nature as the work we do while we are young, otherwise a lot of people like Thomas will be too tired to work until the retirement years arrive.
100% pay at age 50 -- in California
I California tens of thousands of city and county employees can retire at 100% (and MORE) of final salary at the age of 50 -- usually salaries in the six figures.
SS is absolutely in fine shape compared to what is happening in California.
One problem: Raising the
One problem: Raising the retirement age has no impact on lifetime payout IF you live long enough to collect. And judging from comments by "Tits" Simpson, it's not beyond belief that this is exactly what the Catfood Commission has in mind.
Dulce et decorum est pro patria mori.
(OK, it's Latin for "It is pleasant and proper to die for one's country.")