Economics, Entitlements

More on regressivity and the retirement age

Image Credit: Shutterstock

Image Credit: Shutterstock

Over on Twitter, Bloomberg’s Josh Barro takes issue with my recent post arguing that raising the Social Security full retirement age (currently 66) isn’t regressive because the truly poor fall into the disability program, whose benefits wouldn’t be affected. A higher retirement age, Josh says,

“must be regressive I think, due to lower life expectancy of people with lower earnings.”

I put years of my life into learning about Social Security and I’ll be damned if some dude thinks he can debunk me in 144 characters or less. (Just kidding: Josh is both a good guy and a smart one.)

On the same subject, Josh’s Bloomberg colleague Evan Soltas writes that raising the retirement age is “deeply regressive”:

The rich live longer than the poor and the gap between rich and poor in terms of life expectancy has expanded sharply over the last three decades, so raising the retirement age takes a much larger fraction of benefits away from poor retirees than rich retirees.

Rather puzzlingly, as evidence Soltas links to an interview in which economist Peter Diamond calls that claim “mostly a red herring.”

In any case, I think our disagreement stems from a misunderstanding of how the Social Security retirement age works. Look at it this way: Imagine that we cut retirement benefits 7% across the board. Is that regressive? No, because everyone gets the same 7% cut. Long-lived people still do better than short-lived, all other things equal, but everyone gets 7% less.

But if you increase the full retirement age 1 year, it’s really nothing other than a 7% across the board benefit cut. You can still claim benefits as early as 62, but regardless of when you claim you’ll get 7% less than you otherwise would have. If you delay claiming an additional year, say from 66 to 67, you’ll make up for that cut. But you could frame any benefit cut in those terms. Social Security is complex and so there may be other interactions to think about, but broadly speaking a higher retirement age is simply a uniform, across the board benefit cut.

Raising the EARLY retirement age of 62 may well be regressive, since if you don’t live to collect you get nothing. (Of course, if the early retirement age rises more of the poor will end up on disability, so you’d still want to run the numbers.) That’s probably what Barro and Soltas are thinking about, except that it’s not often proposed because it does almost nothing to improve Social Security’s financing. But raising the full retirement age, the policy that’s actually under consideration, shouldn’t be regressive.

One thought on “More on regressivity and the retirement age

  1. The bigger problem is that in the context of a 16 trillion debt and trillion dollar deficit that is in our faces RIGHT NOW – the SS issue is a gnat on a dogs butt with relatively easy choices for fixing….

    yet we persist in making it more of an issue than it ought to be – right now -and a huge distraction to the bigger budget issues.

    why are we doing this – right now?

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