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Can Extending Retirement Age Help Social Security?


Switching gears now, we'd like to talk about a question that is both political and personal. It's when to retire. On a personal level, this can be an emotional and complicated question, but on a policy level, it is, too. And the questions before us, in part, because in April, trustees of the Social Security system reported that, if economic trends hold, the system would exhaust its funds in the year 2033.

Now, political and policy leaders have offered several solutions to this and one of them is to raise the retirement age. Currently, Americans can get limited Social Security benefits at age 62 and full benefits at the age of 65, but now there's a new report that suggests that raising the retirement age would disproportionately hurt blue collar workers.

Most would retire, anyway, but with less money, the report says. And the report also suggests that it probably wouldn't have that much financial benefit for the Social Security system itself.

We wanted to talk more about this, so we've called on Steve Cunningham. He is the director of research and education for the American Institute for Economic Research. That's the group that's behind this analysis and he's with us now.

Mr. Cunningham, thanks so much for speaking with us.

STEVE CUNNINGHAM: Thank you for having me.

MARTIN: Your organization analyzed which kinds of workers retire at 65 and which workers tended to stay in the workforce longer. What gave you idea to think about the issue in this way?

CUNNINGHAM: Well, we wanted to look at proposals that have been given to fix Social Security and we'd heard about raising the retirement age or creating incentives to cause people to retire later or cutting benefits and we thought these three common proposals deserved a good look.

And I think that the common conception was that the people who are retiring relatively early are the ones who have higher incomes and can afford to retire early and we realize that, when we looked at the data, that that's not the case.

It tends to be people with lower incomes, people that are truck drivers, nursing aids, gardeners, mechanics, kitchen workers, farm workers and so on who don't have particularly high incomes and you have to ask, why would they choose to retire early? And, of course, there are many reasons.

MARTIN: Well, I wanted to talk about that, but one of the things that you found that - of the sample in the survey - fewer than five percent of the workers in many white collar professions were retired at age 65 in contrast, as you said, in most blue collar professions, much higher percentages of workers were retired at the age of 65, including 14 percent of truck delivery and tractor drivers, 18.5 percent of gardeners and 32 percent of machine operators. In fact, that you found that the only blue collar profession in which the vast majority of workers were still employed after the age of 65 were hairdressers and cosmetologists.

So, again, that raises the question. Why do you think that is?

CUNNINGHAM: Isn't that really surprising? Yeah. There are a couple of reasons why. First of all, we believe that these professions are probably physically more taxing so that, later in your life, it gets harder and harder to keep doing this kind of work and so you have a bigger motivation to retire.

It may also be that some of these professions require faster reflexes and things like that which may decline with age and give you even more incentive to want to step away from, especially these professions that are more dangerous.

The other thing is that - let's give a simple example. If I make $200,000 a year - wouldn't that be nice? If I retire and go on Social Security, I think the most I could make would be maybe $25,000, $30,000 a year, something like that. That's a huge decline in my income.

If I make $35,000, $40,000 a year and I go on Social Security, certainly I'll take a drop in my income, but it won't be nearly so big. So that's certainly part of it, as well.

MARTIN: We're talking about how raising the retirement age would affect people in different occupations. Our guest is Steve Cunningham of the American Institute for Economic Research. That is actually a very old organization. It's been around since 1933 and it's a nonpartisan institute and the purpose is to evaluate how economic policy affects individuals. And this organization recently authored a study on this question.

So let's - can I just play devil's advocate for a minute? And according to...


MARTIN: ...the Centers for Disease Control, the current average life expectancy for an American is 78.5 years. That's the average. And, according to the Social Security Administration, the life expectancy in the 1930s when the retirement age was set was just 58 for men and 62 for women. So people look at that and they think, well, shouldn't the retirement age be adjusted to at least reflect the new reality?

CUNNINGHAM: Oh, it sounds good and I have to admit, it has some attractiveness to me. One of the things that we faced when we looked at this problem and tried to analyze it was that, when people talk about raising the retirement age, what they're talking about is raising the Social Security full retirement age and this is what people think of as being age 65.

Now, it's already 66 or 67 for a lot of us. That was changed in 1983, but that's the age at which the benefits become available. That doesn't - one of the problems we have in economics is that we have these people that, you know, make it more complicated. So, even though you tell somebody that you can receive full retirement benefits at age 67, they may decide to retire at age 60 or 62 or at age 70 or 75. It's still a choice.

So the point being is, if you raise the retirement age to - let's say this full retirement age to age 70 or something like that, none of the proposals have talked about changing the lower retirement age, which is...

MARTIN: Limited benefits...

CUNNINGHAM: ...age 62.

MARTIN: ...at 62.

CUNNINGHAM: Right. And so, if you told me, you know, you can't retire with full benefits until age 72, but you can get 70 percent at age 62, I'd say, well, I'll just retire early. And what that does is that means you pay in for fewer years and you collect benefits for more years.

MARTIN: Now, I understand that your institute is nonpartisan and its goal is to offer objective analysis of these policy questions with the focus, as we said, on how policies affect individuals. But what I would like to ask is, based on the research, do you feel comfortable offering a conclusion about what's wrong with raising age? Is it because it's socially unfair, that people who are just physically not capable of working at the same pace longer than 65 would be more likely to be affected? Or is it just sort of a larger cost benefit analysis? You're saying it just really wouldn't achieve the stated result of saving money?

CUNNINGHAM: Oh, it's really more the latter. Certainly, we, in our study, tried to look at the personal costs because we think that's important. We did find that there is sort of a disproportionate impact, which certainly deserves further study. But we also had to say that raising the retirement age may not have the impact that you think it would. And if you tried to create an incentive to get people to choose to retire later, people are going to do the same arithmetic that the Social Security Administration would do and they may game the system to their advantage, which may negate a lot of the impact.

MARTIN: What do you mean by game the system? What does that mean?

CUNNINGHAM: Well, what I mean is is there's a lot of studies out there and a lot of websites where people are trying to figure out when's the optimal time for me to go on the Social Security system? I may continue to work, but you know, when should I actually go and make my claim and start collecting benefits? And so they're gaming the system. They're trying to find out the optimal time for them in their circumstances, which they should do.

MARTIN: Now, I understand that you attribute a lot of false starts in the debate over how to shore up Social Security to misunderstanding about what the program is and how it's actually supposed to operate. Can you talk a little bit about that?

CUNNINGHAM: Yeah. It's - you know, the technical term that comes to mind is it's a mishmash. Well, it ought to be a technical term. It's not really a retirement plan and it doesn't fully operate as a safety net and, in that confusion between what it is and what it wants to be, that's where a lot of problem lies.

You know, it really was not designed to be the sole source of your retirement income. It was meant to be one piece. You know, you have your Social Security. You have your personal retirement, like an IRA or whatever. You have your business pension plan. You have your savings. You know, and you put it all together and you build a package and that's how you retire. That was sort of the plan. But people have kind of lost sight of that and now they struggle.

MARTIN: Steve Cunningham is the director of research for the American Institute for Economic Research. That is a nonprofit nonpartisan economic research institute founded in 1933. Its goal is to analyze economic policy issues with an eye toward how they affect individuals and he was with us from WAMC, Northeast Public Radio, in Albany, New York.

Mr. Cunningham, thanks so much for joining us.

CUNNINGHAM: Thank you for having me. Transcript provided by NPR, Copyright NPR.