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TO SAVE SOCIAL SECURITY, LET'S GET TO WORK

Raising the normal retirement age to 70 is a needed first step, leading experts say.

MarketWatch

The time has come for the nation to face some facts, and according to Republican U.S. Rep. John Boehner of Ohio, the House minority leader, that means fixing Social Security by raising the normal retirement age to 70 for future retirees, from the current 67.

Boehner wants to increase the retirement age to 70 for people who have at least 20 years until retirement. He also wants to tie cost-of-living increases to wages rather than the consumer price index and to limit payments so they go to only people who need them, according to published reports. The current Social Security "normal retirement age" for those born in 1960 or later is 67.

"We need to look at the American people and explain to them that we're broke," Boehner was quoted as saying in the Pittsburgh Tribune-Review. "If you have substantial non-Social Security income while you're retired, why are we paying you at a time when we're broke? We just need to be honest with people."

"Boehner is taking a gutsy and, in my view, absolutely correct stance," said Olivia S. Mitchell, a professor at the University of Pennsylvania's Wharton School, executive director of the Pension Research Council and director of the Boettner Center for Pensions and Retirement Research.

"As Americans live longer and fewer young workers are around to tax so the government can pay retiree benefits, the system is becoming increasingly unaffordable," she said. "Revenues fell below benefit costs this year with the economic crisis, as more people retired early and fewer workers were paying in benefits. So the Social Security system urgently needs reform."

Alicia H. Munnell, director of Boston College's Center for Retirement Research and a professor at the school's Carroll School of Management, though more circumspect, also favors the notion of raising the normal retirement age.

"It merits consideration," she said. "Because retiring later is the best way to achieve a secure retirement. It all makes sense to work longer."

Working longer has many benefits: It increases the amount of money people can save for retirement, reduces the amount of money people need for retirement, and helps save Social Security, Munnell said.

But while Boehner's remedy might be gutsy, it still falls short of what could be and should be done, according to Mitchell and Munnell.

Olivia Mitchell and Alicia Munnell offer other possible ways to help fix the Social Security shortfall:

INDEX RETIREMENT AGE TO LIFE EXPECTANCY: "I wouldn't stop at age 70," Mitchell said. "I'd suggest we do what Sweden and other countries have already done, which is to index the retirement age to future changes in life expectancy." Munnell noted that in the 1930s, when Social Security set 65 as normal retirement age, life expectancy for those aged 65 was 77. Today, life expectancy for those 65 is 82.

INCREASE EARLY RETIREMENT AGE: If he really wants to fix Social Security, Boehner should propose increasing the "early retirement age" too, Mitchell said. Right now, Americans can and do claim benefits at 62, the current early retirement age, and get a reduced benefit. "Boehner's plan to raise the NRA to 70 without boosting the ERA would mean that early retirement benefits would be lowered by 45 percent," she said. "This could be an unexpectedly big hit to many retirees, which could be fixed by boosting both the ERA and the NRA in tandem, since Americans tend to take their benefits at the ERA."

DISABILITY BENEFITS SYSTEM MUST BE FLEXIBLE: Munnell agreed that increasing the NRA and ERA make sense, but it must be done in ways that protect those who truly need Social Security before the normal retirement age. Raising both will hurt those who have a short life expectancy, such as some minorities, and the 20 percent or so of people who claim Social Security early for health reasons.

WORKING LONGER: There are those who say older workers won't be employable past 65. "But this is all, as an economist says, 'endogenous,'" Mitchell said. "That is, if you know that your work life will last until age 70, you'll be likely to continue to invest in your skills later in life, which will help make you more employable. And the fact that jobs today are much less physically demanding than they were 30 years ago helps make a longer work life feasible."

INDEX COST-OF-LIVING ADJUSTMENT TO WAGES: Boehner also expressed a desire to index Social Security's cost-of-living adjustments to wages instead of the consumer price index. According to Mitchell, that would be extremely effective in reducing the Social Security shortfall. "In fact, that is so effective that there would be room to boost low-earners' benefits and payments to those whose spouses have died," she said. But Munnell isn't as fond of that idea. "Social Security benefits are low as they are," she said. "We don't want even lower replacement rates."

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