Raising the Retirement Age Can Help Social Security, But It Is Not Enough to Save It

As we come to the climax of this presidential election, I think about Social Security and how neither presidential candidate intends to cut Social Security benefits. As I brought up last year, Social Security is not sustainable. The Social Security Trustees' Report calculates that the Social Security trust fund is to be depleted in 2035. Afterwards, there will be a statutory reduction in Social Security benefits. 

One commonly recommended policy alternative to help save Social Security has been to raise the retirement age to 69. It was a topic I explored back in 2013 and one you can explore further with this Congressional Research Service primer. While I was in favor (and still am) of raising the retirement, there was a concern of mine: cutting the retirement age would not be enough. Over a decade later, it looks like my concern was justified. An analysis from the American Action Forum brought my attention to a Congressional Budget Office (CBO) letter published last month. Two main findings were 1) raising the retirement age would reduce benefits (which the Left-leaning Center for American Progress pointed out in July), and 2) it would not be enough on its own to extend the life of the trust funds. 

Per the CBO letter, Social Security spending would be 0.5 percent of GDP less than under current law, which is not bad considering that CBO predicts that Social Security spending will be 5.4 percent of GDP in 2054. But 0.5/5.4 is still less than a reduction of 10 percent. That simple back-of-the-envelope calculation shows how it barely scratches the surface. Even with variations of options about changing Social Security retirement age, as is presented by a September 2024 analysis from the Brookings Institution (see below), it still has a ways to go. 

Do not mistaken my analysis or any of these cited analyses as saying that we should abandon tinkering with early retirement ages for Social Security. As a pointed out with my analysis of the France case study last year, there are too many retirees pulling funds with too few workers contributing to public pension funds. When you have more money going out than going in for an extended period of time, a financial system cannot remain solvent. That is what has happened with Social Security in the United States. Plus, raising the retirement age is shown to improve economic growth by the fact that workers stay in the labor market longer and make more money in the process. 

Social Security is out of whack enough where it is going to take multiple policy alternatives in addition to altering full retirement age (e.g., lowering benefits, altering the formula) to make a difference with Social Security. Hopefully, it can add up to either making Social Security solvent once more. Or even better, the American people realize that privatizing retirement accounts brings them a better return on investment (ROI) and therefore is better for their retirement.