Raising the Retirement Age for Disability Will Only Benefit the Affluent
The recent bipartisan budget deal passed by President Obama in November 2015 shifted payroll tax revenue from the Old-Age and Survivors Insurance (OASI) to the Disability Insurance. The transferring between the two funds will only maintain solvency until 2034. During an election season, there is an opportunity to raise awareness about Social Security solvency. It’s crucial to ensure the program’s long-term health beyond 2034, when the system is projected to come up short. Contrary to Republican belief, this can’t be done by broadly cutting benefits. Social Security has become ever more important in retirement. The only efficient solution is relocating benefits among beneficiary groups.
Currently, 36 percent of retirees rely on Social Security for 90 percent or more of their income, while 65 percent of retirees rely on it for more than half of their income. The average monthly benefit is $1,300. In May 2015, the Government Accountability Office found that 52 percent of American households with someone 55 or older have nothing saved for retirement and that only half of that 52 percent have a company pension fund. For those ages 55 to 64 with retirement savings, the median amount of savings cuts it barely to a six-figure number. Those in their 50s now would be devastated with further cuts to retirement security.
Younger workers like myself are arguably worse off because saving has become increasingly difficult or impossible due to stagnating wages, high college debt, high rents and the lack of employer-provided retirement benefits. In 2013, only 44 percent of workers on the lower half of the income scale had a retirement plan at work, down from 54 percent in 1995, according to the Federal Reserve. With current millennials and older workers in their 50s having little to no retirement savings, raising the retirement age (arguably the Republican alternative to Social Security funding) will hurt low-income workers, while benefitting the high-earners.
Studies show that despite the rich are well-off and live longer, collecting more and bigger benefits than shorter-lived beneficiaries. The maximum monthly benefit for retirees who were top earners during their work lives is $2,600, twice as much as the average workers benefits. According to the Brookings Institute, men born in 1940 in the top 10 percent of the income distribution can expect to live for 12 more years than men in the bottom 10 percent; while women in the top 10 percent can expect to live for 10 more years than those in the bottom 10 percent.
The rich and economically stable workers are living longer than lower-income workers, creating an imbalance that burdens Social Security retirement savings. The full retirement age has already been raised to 67, for those born after 1960. Raising the retirement age will not solve this imbalance but would hit hardest at low-income recipients. Their income checks are smaller to begin with and they live shorter in the long-run.
There is a way to solve the imbalance without hurting low-income workers and instead increasing their benefits. Currently, the highest-earning beneficiaries receive 15 cents in benefits for every dollar of earnings at the top. Reducing that share to 10 or even 9 cents would cut benefits for the affluent and long-lived retirees, but also make the retirement program more progressive and address the long term shortfall.
Raising the full retirement age for everyone is out of the question. Instead, policy makers need to properly relocate benefits, taking into account socioeconomic status of individuals. The only solution we have to resolve our existing unfair retirement savings system is by addressing the importance that low-income, minorities, and women, all deserve to have a system that serves them fairly and gives them the opportunity to start saving sufficiently for retirement at an early age without the burden of college debt, and stagnating wages. Whoever wins the Presidential election in November, must understand that despite political affiliations, our country needs a Commander in Chief who will not only protect the affluent, but will be fighting to provide more opportunities for the working class to rise up.