Retirement Age

Senator John Kennedy (R, LA) says Congress “of course” should talk about changing the retirement age for federal entitlements.

The life expectancy of the average American right now is about 77 years old. For people who are in their 20s, their life expectancy will probably be 85 to 90. Does it really make sense to allow someone who’s in their 20s today to retire at 62? Those are the kind of things that we should talk about.

He’s right, but there’s more underlying the current age-to-retire paradigm than just raw life expectancy, and those factors need to be addressed as well.

Two such factors are these. One is that when Federal Social Security was enacted during the reign of then-President Franklin Roosevelt (D), the worker-to-retiree ratio was in the neighborhood of 7:1, meaning that there were seven workers paying into the Social Security system for every American who’d retired. Today, that ratio has fallen to less than 3:1, and it’s continuing to shrink. There is less and less money coming into the system compared to what’s being paid out to retirees.

The other factor is the relative life expectancy of retirees, not just the raw longevity of Americans today. When Social Security was first enacted, the average life expectancy for a retiree was about seven years—a retiree lived about seven years after he’d retired. Today, that post-retirement life span is in the neighborhood of fifteen years and slowly lengthening. On top of less money being paid into the system per retiree, that more money being paid out also is being paid out for a longer period of time.

These are the problems that need to be solved. Raising the retirement age and/or raising taxes collected for the system are only stopgap measures that kick the heavily abused can down the sidewalk a short way.

The solution to both problems is to eliminate them. Privatize social security, making the tax payments a worker pays into the retirement system for the benefit of current retirees payments instead into a future retirement account for the worker’s own, and sole, benefit, with that account under the worker’s own investment control. Certainly the conversion from the current system to the new will be deucedly expensive, but that cost will only get worse the longer we delay the conversion.

In parallel with that, Congress needs to eliminate the limits on existing private retirement accounts to which workers have access: Traditional IRAs and 401(k)s, Roth IRAs and 401(k)s, 403(b)s, etc. There should not be (never should have been) any limits on the amounts a worker can contribute annually to these accounts, nor should there be any income limits even to eligibility to contribute.

If a worker, highly compensated or minimum wage, has his own money in his own retirement account, he’ll take much better care of it than Government can ever hope to do. That’s especially true of the minimum wage worker, who understands priorities, risks, and the value of his dollar much better than any Government bureaucrat, however well-intended that bureaucrat might be.

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