A Less Painful Spending Cut: Raising Social Security Retirement Age

The U.S. federal government recently hit its debt ceiling of $31.4 trillion, and barring an agreement between the Republican Congress and the Biden Administration, the nation will default on its debt in the first week of June. Republicans are demanding spending cuts, while the Biden Administration declares no to spending outlays. Are there areas of potential agreement? One of the most logical programs to slice is the largest—Social Security (SS) outlays. Even with no reductions to the program, the Congressional Budget Office (CBO) has forecast that the SS Trust fund will be exhausted by 2033, and would demand a 23% reduction in benefit payments to all recipients in 2034.
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Instead of reducing monthly benefit payments, the retirement age could be changed with legislative action. The original Social Security Act of 1935 set the minimum age for receiving full retirement benefits at 65. The accompanying table shows how the rising life expectancy has impacted the years spent in retirement thus accounting for a large portion of the financial paucity of the SS Trust Fund.

A 2020 analysis conducted by the Congressional Budget Office (CBO) found that increasing the full retirement age by two months per birth year until it reached age 70 for Americans born in 1978 or later would decrease total federal outlays by $72 billion for the period 2021-30. Thus, a female born in 1978 would have a full-retirement age of 68 years and 4 months in 2030. Using data from table 1 shows that this individual would spend an estimated 12.8 years in retirement, or almost the same as in 2000. Raising SS’s full retirement age makes sense because it corresponds with Americans’ lengthening lifespans and would lessen the burden on the future generations.

Ernie Goss