US - Raising the normal retirement age would reduce the social security solvency shortfall by about 36%, says the American Academy of Actuaries.
Ron Gebhardtsbauer, the senior pension fellow of the academy, told Congress raising the retirement age - which recently increased from 65 to 66 - by one month every two years would reduce the social security shortfall by about one-third.
“While that reduces the increase in annual benefits, it doesn’t have to reduce total lifetime benefits, because each generation is living longer and therefore receiving benefits for more years,” he said.
An Act of Congress passed in the 1983 amendments phased in the increase in retirement age over six years. Speaking before the US House Ways and Means subcommittee on social security, Gebhardtsbauer said the change only affected people under the age of 45 at the time of enactment, so had no impact for 17 years.
Gebhardtsbauer said price indexation can reduce benefits four times faster and also reduces disability benefit, while raising the retirement age does not.
Workers could still retire at age 62 and receive social security benefits, but the benefits would be less, he added.
To avoid inadequate early retirement benefits, Gebhardtsbauer pointed to the need for an employer-sponsored pension system to provide supplemental benefits until social security is available.
While a gradual increase in the earliest eligibility age from 62 to 65 reduces the social security shortfall by an additional 10%, it can have a big impact on when people retire - largely a financial decision, he said.
“Proposals on tax reform, lifetime savings accounts, or annuity taxation substantially change employer incentives to offer pension plans, so care should be taken to not kill them,” Gebhardtsbauer said.
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