Raising the Retirement Age for Social Security

Implications for Low Wage, Minority, and Female Workers

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As the debate over Social Security privatization continues in the media and the U.S. Congress, raising the retirement age has once again received fresh attention. Certainly today, people generally live longer than in the past and thus rely on Social Security benefits for longer. Proponents of raising the Social Security retirement age argue that workers should work longer before becoming eligible for full Social Security benefits.

Social Security is a form of retirement savings for individuals, but the savings aspect of the program has always been combined with a significant social insurance role. Social Security also protects from poverty those workers who can no longer work due to age or disability. While some workers are able to rely on other forms of retirement income, for many, Social Security is the primary or only income source in retirement. Evidence reviewed in this paper suggests that a higher retirement age could disproportionately affect those people who already depend the most on Social Security for retirement income, e.g. lower income workers, minorities and women. These workers tend to be in worse health than their counterparts at older ages, tend to have lower life expectancies and tend to have less retirement wealth outside of Social Security. Specifically, the data suggests:

• Longevity and health status at or near the current retirement age are two separate issues. Specifically, while gains in life expectancy have accelerated, health improvements for those near the current retirement age appear to have slowed.
• While the majority of older workers are in good health at or near the current retirement age, there is a substantial minority who are not. Moreover, women, minorities, blue collar, and lower wage workers tend to be in worse health than their counterparts.
• Working longer before receiving full Social Security benefits is a benefit cut that would impact African-Americans, blue collar workers, and low income workers more than their counterparts.
• It is also important to consider whether employers are willing to hire more older workers when the retirement age is raised. Labor market trends do not necessarily support the view that there is a hiring boom for older workers.
• Groups that would be disproportionately affected by a higher retirement age tend to have lower retirement savings outside of Social Security than their counterparts.

The popular discussion of proposals to raise the retirement age tends to rely almost exclusively on the growing (median) longevity of the population and give far too little consideration to the distributional implications of the proposal. Nor does the current discussion sufficiently consider the implications for the social insurance aspects of the Social Security program. Thoughtful reform will address all of these issues.