Rosalind Evans
The decision to raise the pension retirement age from 62 to 64 in France has initiated a wave of continuous protests. In parallel, the U.S. may be heading towards an analogous adjustment concerning the Social Security retirement age.
The potential shift may not provoke the same level of public dissent as observed in France, yet some experts urge younger individuals to express their concerns actively, either through protests or by actively participating in discussions about potential reforms to the program.
Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, affirms that these potential changes will not impact current retirees or those nearing retirement age (55 and above). Instead, these modifications are expected to affect the younger, working-age populace.
Global Perspectives on Retirement Age
The Impending Impact of Program Changes on Younger Workers
A significant turning point is looming for Social Security within the next decade. The system has been designed so that current beneficiaries are primarily financed through workers’ payroll tax contributions. However, with a daily increase of individuals turning 65 — projected to rise from 10,000 to 12,000 per day in 2024 — the program is under considerable financial stress.
The Social Security Board of Trustees’ latest forecasts reveal that by 2034, the program’s combined fund will be exhausted, one year earlier than the previous 2022 prediction. This depletion will only allow 80% of benefits to be covered.
In the past, the country faced a similar predicament. The 1983 reforms, which included benefit taxes and the gradual increase of retirement age from 65 to 67, extended the program’s lifespan. The raised retirement age is still being phased in, mandating individuals born in 1960 or later to wait until 67 to receive full retirement age benefits.
However, legislators have rejected changes impacting current and near-retirees, leaving younger generations to shoulder the financial implications of any future program adjustments.
Laurence Kotlikoff, a Boston University economics professor and Social Security expert, voiced his concerns about the potential repercussions for young people. He passionately urged millennials to protest and rally in Washington as these changes represent a generational burden shift.
An event hosted by The Century Foundation and New York University, concentrating on Generation Z (born from the mid-90s to mid-2010s), underscored that this demographic could take a significant financial burden. Although the current Social Security issues will likely be resolved long before Gen Z considers retirement, they may still bear the consequences of filling the 20% to 25% funding deficit, according to Laura Haltzel, a senior fellow at the Century Foundation.
Impact of Retirement Age Increment on Workers
If Social Security claimants opt for early retirement at 62, they receive reduced benefits. If they wait until their full retirement age, transitioning to 67, they receive 100% of their earned benefits. However, if they delay claiming until 70, they receive an 8% annual increment.
For instance, if one is eligible for a $1,000 monthly benefit at full retirement age, claiming at 62 would only yield $700 per month. Waiting until age 70 would increase the monthly payout to about $1,240, as explained by Jason Fichtner, a former Social Security Administration executive and chief economist at the Bipartisan Policy Center.
Increasing the retirement age would further reduce the benefits of those claiming at 62, possibly causing hardship for those unable to wait. Thus, Fichtner emphasized the importance of considering how such a change would impact different income groups.
No Simple Solutions
Various alternatives are being discussed to deal with the funding shortfall, including tax increases, benefit reductions, or a combination of both. Some suggestions include raising the current 12.4% payroll tax rate, shared evenly by workers and employers, or increasing the maximum wage income subject to these taxes, currently $160,200 in 2023.
If lawmakers cannot agree on tax increases or benefit cuts, they may resort to transfers from general revenue, Fichtner suggested. This action could add another $200 billion to $300 billion annually to the existing $31.4 trillion national debt, which would burden the next generation with more debt.
Fichtner warned, “There is no free lunch here,” hinting at the inevitability of some financial sacrifices. He also proposed innovative solutions like a carbon tax or a financial transaction tax on stock sales.
While Social Security is expected to endure for younger generations, Haltzel noted that the changes might have financial implications for these demographics.
Haltzel warned the younger audience, saying, “As we’ve seen in the past, politicians prefer to levy financial burdens on those yet to retire, putting you squarely in their sights.”
Her final message to the Gen Z audience was a call to action: “Please get involved and stay engaged.”
The shifting dynamics of Social Security represent a significant concern for younger generations in the U.S. As the retirement age potentially rises, echoing developments in France, younger cohorts could face a heavy financial burden. As such, the importance of their active participation in these ongoing discussions cannot be overstated. Their involvement could shape the future of Social Security and their financial futures. Policymakers, experts, and young citizens must work together to find sustainable solutions for a program that millions rely on for financial security in retirement.
