Social Security Reform

In Process

(1) While general improvements in longevity, health, and workplace conditions over recent decades suggest that most workers would be capable of working to a later retirement age, many older workers would face health or physical challenges that could prevent them from working longer. According to our analysis of preretirement age individuals using the HRS, about one-quarter of age 60-61 workers--those just prior to early retirement eligibility and most likely to be impacted by a change in retirement age--from 1998 to 2008 reported a work-limiting health condition, and about two-thirds of those who work report having a job that is physically demanding. Disability rates increase with age, suggesting that workers postponing retirement would face increasing likelihood of becoming disabled. Even healthy older workers may have trouble staying in the labor force longer as those that lose their jobs are less likely than younger workers to get rehired. (2) Raising the EEA or FRA could increase the number of applications to and beneficiaries of DI and other assistance programs, as well as change retirement benefits. Raising the EEA would postpone eligibility for retirement benefits and could cause some older individuals with work-limiting health conditions to apply for DI instead of waiting to claim retirement. Raising the FRA reduces retirement benefits for individuals who retire early, and could create a financial incentive to apply for DI benefits, which are not reduced. A few researchers have begun to study the effects of the prior increase in the FRA, and two studies conclude that the increase has led to more DI applications. SSA actuaries estimate that raising the FRA further would increase the number of DI beneficiaries. With respect to the OASDI trust funds, the actuaries project that raising the FRA would improve solvency, but raising the EEA alone would worsen solvency. (3) Experts we interviewed indicated that modifications to the DI program and policy changes that provide alternative income support for low-income workers or employment support could help older workers who are unable to work, do not qualify for DI benefits, and are unable to receive enough support from existing programs. While existing programs like unemployment insurance and workers' compensation could provide some support for older workers, they are generally of limited duration and not everyone may qualify. Some proposals to support older workers include modifying the DI program, such as by allowing determinations of "partial disability" similar to how the Veterans Administration determines disability. According to SSA, however, this would be a major change, and SSA would expend significant resources in making such modifications to the DI program. Other proposals include options for income support in the absence of DI, such as setting different EEA's for workers based upon lifetime earnings, with lower earners having an earlier eligibility age; however, this policy may not specifically target workers who experience a disabling condition. Raising the EEA would likely have larger effects than a comparable rise in the FRA on retirement decisions, DI applications and awards, and on vulnerable older workers because it would remove the age-62 early retirement option, as opposed to lowering benefits for all early retirees. Changes in the retirement age could conceivably improve retirement security for able-bodied workers if they cause them to work longer and save more for retirement, but it could worsen security for those unable to do so. While policy options exist to mitigate the impact on affected workers, doing so will likely require expanding programs and increase benefit costs. Finding the balance between worker protections and costs will likely be challenging.