Social Security Reform

Many of the proposals before Congress to mitigate Social Security's long-term financial shortfall of nearly $3 trillion would raise either the normal retirement age, currently 65, the early retirement age, currently 62, or both. Increasing retirement ages is expected to help alleviate the financing problem by increasing the amount that individuals pay into the Social Security trust fund and reducing the benefits they draw out. GAO found that raising the Social Security retirement ages could improve long-term solvency for the program by increasing revenues and reducing benefits, but it is unclear whether employers will be willing to retain or hire older workers. Older blue-collar workers may be adversely affected because they are at risk for certain health problems that limit their ability to continue working.

GAO noted that: (1) raising the retirement ages does appear to improve the social security program's long-term solvency and could increase the nation's economic output; (2) raising the ages at which individuals can draw benefits creates incentives for workers to remain in the labor force, thereby increasing revenues to the trust fund and decreasing the amount of benefits paid; (3) the majority of older workers, aged 62 to 67, do not appear to have health limitations that would prevent them from extending their careers, and thus their labor force participation should increase as the retirement ages are raised; (4) this greater labor force participation should raise the level of economic output as more people work longer; (5) however, the extent to which labor force participation increases depends on whether sufficient jobs are available for older workers; (6) employees may be willing and able to extend their careers, but it is unclear whether employers will be willing to retain or hire them because of negative perceptions about costs and productivity; (7) blue-collar workers may be disproportionately affected by these labor demand and supply factors because they are at greater risk for incurring certain health problems that could limit their ability to remain in the labor force; (8) for example, workers in poor health who otherwise might have kept working until they qualified for social security retirement benefits may opt to apply for DI, which could increase costs to this program; and (9) in addition, SSI could also experience increased participation and higher costs because some individuals will be dually eligible for DI and SSI.