Social Security Retirement Age: Alternatives and Cost Comparisons

Abstract

The burden of financing the Social Security system is expected to increase dramatically in the future as the ratio of covered workers to beneficiaries declines. Recently, the National Committee on Social Security recommended a gradual increase in the retirement age to age 68. An alternative plan to increase the retirement age to age 70 is proposed. Cost savings of both plans are compared. The alternative plan's savings are roughly 40 percent greater than the savings of the NCSS plan. Social and political factors relevant to the passage of any such plan are also discussed. Future financing of the social security program is an oft discussed problem facing this country. Since social security's inception in 1935, the demographics of the American work force have changed dramatically. Originally, in 1935, there were 9.4 people at the working ages (20-64) for every individual age 65 and older. In 1980, this ratio was 5. 1, and in the next 50 years it is estimated to decrease to between 2.0 and 3.1 (p. 61, 5). Using a similar measure, these demographic changes can also be seen. The ratio of covered workers to retired worker beneficiaries was 6.2 in 1980 with expectations of further declines in the decades to come. One forecast projects that in the next 50 years this ratio will decline to between 1.9 and 3.2 depending on the specific assumptions employed (p. 54 and p. 67, 5). This relative decline in social security contributors to social security retired worker beneficiaries is likely to cause an increasing burden on the American workers. This increased burden may even create generational conflicts. Peter Drucker succinctly comments on this possibility in (1): Beyond a certain point, the proportion of retired people becomes so large as to be economically unsupportable, and seriously damages the economy's capacity to produce, to form capital, and to improve productivity. As the proportion of retirees goes up, a conflict arises between the young producer and the older consumers . . . Old people can exploit young producers because they outvote them. People over 55 . . . already hold something like two-fifths of the voting power in every developed country (if only because older people tend to vote more heavily than those under 35). The authors are both Assistant Professors of Business Administration at Emory University. The authors wish to acknowledge the useful comments by two anonymous referees. Also, special thanks must go to Mr. Steve Goss of the Social Security Administration for his help in supplying the cost estimates of the alternatives discussed within this paper. Naturally, all others but the authors are exonerated from remaining errors and omissions.