In the news today was a report from the Organization for Economic Co-operation and Development indicating that, by 2050, the average person can expect to live over 20 years in retirement. This projection, if it comes to pass, will force a fundamental shift in how retirement is viewed, planned for and implemented – both at the individual level and the national level.
At the individual level, the questions are fairly straight-forward, though the answers are not. The primary questions are, much as today, how does one save enough to retire and live comfortably their remaining years and what does one do after retiring from a career that likely had taken the majority of their waking hours for 40+ years. The question of savings and investment is exacerbated by the increased lifespan after retirement – if people are living on average 20 or more years, then some will certainly live 25, 30 or even 40+ years in retirement. How can one save enough in a 40 year career (and presumably be paying off school loans, then a home loan, then raising a family) to live 40 more years afterwards? And can you really expect to spend all that time fishing or travelling or such after pushing for so many years to increase productivity and become better at your craft?
At the national level, it all boils down to money. Namely, how can Social Security cope with the increased number of retirees and their increased lifespan? How can we expect that we can support a populace that spends half of its lifespan out of the productive workforce? (An 87 year old would spend 22 years growing up and 22 years in retirement.) The simple answer is that we can’t support a populace like that – and Social Security can’t handle the increased load – because it was never designed to. When Social Security was passed in 1935 (yes, the country survived for over 150 years without it), the life expectancy at birth was 61.7 years, meaning that the average person could expect to receive $0 in Social Security since they wouldn’t live long enough to collect it. The system was designed to provide for those that lived longer than average – not support the population for decades.
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So what can be done in the face of these looming demographic changes in our society? The answer is simple, but will undoubtedly be controversial and unpopular: increase the retirement age, indexing it to the life expectancy. The retirement age is already set to increase from 65 to 67 over the coming years – and estimates are that increasing it to 70 would save 13% in expenditures from the trust fund. But that may not even be enough as the life expectancy continues to lengthen. If we use the same ratio as was established in the initial law to determine the new retirement age, we would (and perhaps should) reset the full benefit age to 82. That would certainly solve the retirement savings, productivity and Social Security issues.
So what do you think? Up the retirement age to 70? 75? 82? Or is there another solution?
Oh, and to those that say it’s “their” money that they are getting back, you need look no further than the very first Social Security recipient to debunk that myth. From the Wikipedia article on the History of Social Security:
The first monthly payment was issued on January 31, 1940 to Ida May Fuller of Ludlow, Vermont. In 1937, 1938 and 1939 she paid a total of $24.75 into the Social Security System. Her first check was for $22.54. After her second check, Fuller already had received more than she contributed over the three-year period. She lived to be 100 and collected a total of $22,888.92.
In two months she received more money than she paid in 3 years. And ultimately collected nearly 1000x what she put it – quite a return on her investment!