http://www.miami.com/mld/miamiherald/news/10919706.htm?1c

Higher retiring age one funding option


Raising the early retirement age is being considered by lawmakers as a possible solution to Social Security funding shortfalls.


BY KEVIN G. HALL
Miami Herald
17 February 2005


WASHINGTON - The system's finances could be strained badly when baby boomers begin to take early retirement.

With President Bush and Congress looking for ways to close a projected Social Security funding shortfall of trillions of dollars, some leading lawmakers are proposing to delay the early retirement age, now 62, when people can begin taking benefits.

Delaying early retirement could reduce a Social Security financial shortfall that the system's trustees project at $3.7 trillion in the next 75 years. Nearly six in 10 eligible Americans take early retirement -- although some no doubt do so involuntarily because of corporate downsizing or other changes in the workplace. That trend could strain the system's finances badly when baby boomers -- those born from 1946 to 1964 -- begin retiring in 2008.

The retirement of 76 million boomers will drain Social Security's reserves. By 2030, a third of the U.S. adult population will be collecting Social Security checks. If 60 percent retire early, that's 45.6 million people taking cash out of the Social Security system starting at age 62.

When Americans retire early, Social Security takes a double whammy: Benefits are paid out earlier, and the retired workers stop paying wage taxes into the system sooner than they would if they retired at 65.

 Workers who retire at 62 get a monthly benefit that's 20 percent to 30 percent below what they would get if they waited until age 65, but that's not enough to offset the net impact on the system of mass early retirement.

''It's the combination of the two that makes early retirement more expensive'' to the system, said Eugene Steuerle, a senior fellow at the Urban Institute, a liberal research center in Washington. ``A year or two of more work is a powerful increase [in funds] for any system.'

'During his State of the Union address, President Bush identified delaying early retirement as one of a handful of ways he would consider to fix Social Security. As far back as the mid-1990s, an advisory panel to the Social Security Administration said the future funding shortfall could be reduced by 13 percent or more simply by raising the early retirement age by the same rate the regular retirement age rises.

Under a schedule Congress set in 1983 -- the last time Social Security was overhauled -- the regular retirement age will rise to 66 for people born from 1943 to 1954, and to 67 for those born in 1960 and later. For the birth years 1955 to 1959, the retirement age rises by two-month increments each year. For example, the retirement age for those born in 1955 rises to 66 and two months; in 1956, 66 and four months, and so on.

Congress didn't change the early retirement age, but some members are considering it now.

Sen. Trent Lott, R-Miss., is expected to propose legislation that would index future rises in the ages for both regular retirement and early retirement to changes in the average U.S. life span. A male worker who retired at 65 in 1940 could expect to live another 12 years, a woman another 13 years. Men now expect to live 16 years after they retire at 65, women 19 years. As people live longer, Lott argues, their eligibility to collect retirement benefits should reflect that.

''It needs to be done, and it's less painful. You can't blame it on your senator, your congressman; you blame it on demographics, for goodness sake,'' Lott said.

Congress also is talking about bumping up the regular retirement age to 70. That would fix about 36 percent of the funding shortfall, according to Social Security actuaries. The shift could be phased in to avoid hurting soon-toretire workers, and it also could address early retirement.

Under the current ratio of benefit reductions for early retirement, workers seeking to retire eight years before a usual retirement age of 70 would lose half the monthly benefit they would receive if retiring at 70. Assuming most probably would choose to work a few more years, that would be a de facto increase in the early retirement age without changing the law.

''By moving the normal retirement age up, it's a way of decreasing the number of people taking it at 62,'' said Ron Gebhardtsbauer of the American Academy of Actuaries. But that won't happen without a big political fight.

AARP, the powerful seniors lobby, defends early retirement. Tinkering with it is ''one of the public's least favorite options'' in Social Security restructuring, said David Certner, head of AARP's federal affairs office.

He left no doubt that AARP would view any changes to the retirement age -- early or regular -- as a declaration of war on aging Americans.

Certner said older Americans often face age discrimination in the workplace, and even those who want to work longer may not find jobs.

Knight Ridder correspondent James Kuhnhenn contributed to this report.
khall@krwashington.com