Thursday, January 21, 2010

Social Security Solutions, Part 2: The three-month solution

In my (much) earlier post, I talked about the need to fix Social Security without unfairly penalizing people who had worked hard and saved their money. I said I was going to discuss three possible solutions: the three-month solution; the 10% solution; and the Lifetime Endowment. This post is about the first of those.

I first ran across the idea at TigerHawk although I later found that Greg Mankiw had mentioned it a couple of years earlier. TigerHawk’s proposal is more fully specified so that’s what I’m relying on. It is breathtaking in its simplicity:

We should immediately raise the age for first eligibility for Social Security and Medicare according to a sliding scale. For each year a person is under age 62, the ages of first eligibility and full eligibility should be extended by three months. So, for example, if you are 50 today you would not become eligible for any benefits until age 65, and for full benefits until age 69. If you are only 38, your ages of eligibility would be 68 and 72, respectively. I would push the scale back to people who are as young as 32; for those that age and younger, the ages of Social Security eligibility would be 70 and 74.

This would, says TH, have three advantages:

First, it would drastically reduce the government's liability for future Social Security and Medicare payments (somebody out there ought to do the math to come up with the actual amount, but it is bound to be huge). ... Second, it avoids the philosophical fight between the statists who want to preserve Social Security as a government program and the conservatives, if there are any left, who want to substitute private savings. Third, it aligns Social Security with the reality of easier jobs and longer lifespans.

Frankly this is so simple and puts the greatest burden so many years down the road that I do not know why it hasn’t already been done. I have quibbles about pushing back eligibility for Medicare but I can’t think of too many reasons not to do so for Social Security. The only ones that come to mind are:

1) The insurance costs for older workers are higher which may make them less able to find employment and/or raise costs for the companies that hire them.

2) With unemployment very high, there is a downside to encouraging older workers to stay in the work force.

I think that when stacked up against the opportunity to reduce Social Security (and perhaps Medicare) obligations going forward, we can live with those problems.

The other issue, of course, is that - as TH himself says - we don’t have a hard number on how much this will save. We have already missed two years of the Baby Boomers, who started becoming eligible for Social Security benefits when they turned 62 in January of 2008. However, based on Wikipedia’s graph, the largest groups of Boomers are still between 45 and 55 so legislation like this would delay their retirement for between 21 and 51 months - just under 2 years to just over 4 years.

It couldn’t hurt, will help at least some, and is pretty painless compared to solutions like means-testing Social Security for people who have already retired. I think this is worth doing.

No comments: