Delaying eligibility may help fix Social Security

By Alison Fitzgerald and Brendan Murray
Bloomberg News Service

WASHINGTON — Federal Reserve Chairman Alan Greenspan, who said last month that encouraging senior citizens to keep working is one way to help fix Social Security, at age 79 still draws a salary and pays taxes into the retirement program.

Like Greenspan, millions of older Americans are retiring later than in the past, reversing a trend toward earlier retirement dating from the 19th century. In the process, they're doing on their own what Republicans and Democrats in Washington are bickering over: finding a way to help keep the 70-year-old retirement system funded.

As workers opt to stay on the job longer, raising the age of eligibility to receive full benefits from the program may become an ingredient of any Social Security legislation this year.

"From a standpoint of protecting the elderly, increasing the retirement age is among the least painful of any cuts that need to be taken," says Eugene Steuerle, senior fellow at the Urban Institute, an economic and social-policy research group in Washington. "If indeed people do work longer, they add more revenues to the system."

Such a step would be politically difficult, as labor groups and AARP, the nation's largest seniors' lobby, have opposed the idea. At the same time, there is precedent: 22 years ago, with little advance warning, Congress approved a phased-in increase even over the objections of Rep. Claude Pepper, a Florida Democrat who at age 82 was one of the most powerful voices for senior citizens' interests.

This time, some of the political pressure against raising the age may be eased by the very fact that Americans are working longer anyway. Older Americans are in the labor force at their highest rate since 1972, in part reflecting larger numbers of working women, according to the Labor Department. Last year, 36.2 percent of those 55 and older were either working or job-hunting, a jump from between 29.4 percent and 31.8 percent in the 1990s.

A University of Michigan study last year found that 42.4 percent of men and 36.4 percent of women aged 50 to 56 planned to work past 65, up from 29.5 percent of men and 22.7 percent of women in 1992. That translates into millions of workers continuing to pay taxes into the system during the next 20 years.

"Increasing labor force participation seems a natural response to population aging, as Americans not only are living longer but are also generally living healthier," Greenspan told the Senate Special Committee on Aging last month.

Social Security changes in the 1980s penalized early retirement, and some workers stay on the job longer out of "economic necessity," said Michael Hurd, a senior economist at Rand Corp.'s center for the study of aging in Santa Monica, Calif.

At the same time, employers have moved from offering pensions that reward early retirement to 401(k) plans that increase in value with more years of work. Last year, there were 31,238 active employer-sponsored pension plans, according to the Pension Benefit Guaranty Corp., which insures such plans. Active plans peaked at 114,396 in 1985.

By 2012, 39.7 percent of those over age 55 will be part of the work force, the Labor Department projects. Seniors 65 and older in the work force are projected to reach 15.9 percent by 2012, up from 11.5 percent in 1992.

Lost in the debate is the flip side of a retirement age increase: higher healthcare costs, which can drain money from the Medicare side of the Social Security system. Some Democratic economists say that would defeat the arguments for raising the retirement age.

"Politically it's a nonstarter, and fiscally and economically it's a nonstarter," says Christian Weller, an economist at the Center for American Progress in Washington. "You'd be wading into a politically charged battle with very little economic payoff for the system."

In visits to 21 states in six weeks, the president has credited former President Bill Clinton with suggesting an increase in the retirement age and said the idea merits discussion.

At almost every stop, Bush jokes that he'll reach the 62-year- old benefits threshold in 2008 — his last year in office.