In response to Governor Chris Christie’s proposal to increase the Social Security retirement age, Paul Krugman and Vox’s Ezra Klein have weighed in, calling it, in Klein’s terms, “a disaster for the poor.” Their basic objection, apart from a general indisposition to cut benefits, is that the retirement age is posed as a remedy for longer life expectancies, which put financial pressure on Social Security. Yet research shows that life expectancies are increasing more rapidly for the rich than for the poor. For people born in the 1920s who reached age 65, the top half of the earnings distribution lived about 3 years longer than the bottom half. For those born in the early 1940s, the longevity gap increased to 5.3 years.
On this argument, increasing the retirement age for everyone effectively makes the poor pay for a problem they didn’t cause. I’ve got some sympathy with this reasoning and the reform plan I outlined in National Affairs doesn’t include a retirement age increase, though it would raise the early retirement age (which delays benefits rather than cutting them).
Others who I respect, however, disagree: Social Security pays benefits as an annuity that lasts as long as you live and so will always favor, in that respect specifically, people who live longer. And in pretty much any conceivable situation, rich people will live longer than the poor. Raising the retirement age doesn’t target the poor: it’s a flat percentage benefit reduction across the board that applies equally to rich and poor, short- and long-lived. And disability beneficiaries, who aren’t affected by a retirement age increase, are far poorer on average than others. And finally, to the degree that raising the retirement age is designed to encourage people to work longer, that’s beneficial to rich and poor alike.
And here’s one thing that Krugman and Klein miss: raising the retirement age wouldn’t solve the entire Social Security shortfall, so you need to look at reform as a package deal. Christie’s plan to gradually raise the retirement age from the currently legislated maximum of 67 in the early 2020s to 69 by 2034 would address about 35% of the long-term shortfall under the Social Security Trustees projections and about 25% under CBO figures. The rest would be fixed in other ways, principally ways that are targeted at higher earners: Christie, for instance, would means-test benefits for the very highest income retirees; former President Bush proposed “progressive indexing” that gradually and progressively reduced benefit growth for the top two-thirds of earners; most progressives favor raising the payroll tax ceiling, which would hit individuals earnings more than $117,000.
So even if you accept Krugman and Klein’s point, solving part of the shortfall using a retirement age increase isn’t equivalent to solving the entire shortfall that way. A reform package can easily be designed to account for and accommodate differences in life expectancies between rich and poor.
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