A GAO report analyzing the characteristics of people who claim Social Security benefits early raises two questions that deserve far more attention than they get: 1. Should people claiming Social Security benefits early–at age 62–be receiving higher benefits to compensate for shorter life expectancies? and 2. Doesn’t raising the age at which people claim Social Security disproportionately hurt blue-collar workers?
According to the Government Accountability Office, people claiming Social Security early typically have significantly lower incomes than people who wait until they are 66 to claim full benefits. A higher proportion of people in blue-collar jobs and people without a college education claim these benefits early than other Americans. The penalty they accept for claiming benefits early is a 25 percent reduction in benefits for the rest of their lives. As it is Social Security benefits in the US are stingier than in most other wealth countries.
The Social Security benefit cut for these early claimants can seriously jeopardize their retirement security. They often rely primarily or exclusively on Social Security for their income. Their reduction in benefits stems from a calculation that is intended to equalize the benefits Social Security delivers to an individual based on the age at which that person claims Social Security. Assuming people with lower paying jobs lived to the same age on average as people with higher paying jobs, it would.
But, the government calculation intended to equalize benefits based on when people elect Social Security discriminates against lower income workers who claim benefits early. Essentially, they are paid lower benefits because they are expected to receive four years more of benefits than people who claim benefits at 66. More often than not, however, they don’t enjoy more years of benefits. People with blue-collar jobs and without a college education typically live shorter lives—typically 5.8 years fewer–than the top half of Americans. The government calculation does not take into consideration this significant difference in life expectancy between these lower income workers and higher income workers.
Adjusting Social Security benefits based on people’s income levels and life expectancies would be fairer than the current system, but it would be difficult to execute in practice. However, reducing benefits for blue-collar workers who don’t live as long as white-collar workers and who depend more heavily on their Social Security benefits in retirement threatens their retirement security.
Bringing the eligibility age for Social Security back down to 65, rather than raising the eligibility age up from 67 would help people with lower incomes in retirement. However, it would increase Social Security expenses and still would not compensate blue-collar workers with shorter life expectancies. Raising the age of eligibility for Social Security, as some are advocating, would only make it that much harder for lower-income workers to manage financially in retirement and further discriminate against them.
Strengthening Social Security, so it allows people at all income levels to retire with dignity should be a government priority. Expecting people to work longer until they can claim full Social Security benefits sounds good in theory, but delaying retirement and working longer is only an option for people lucky enough to have jobs or in good enough health to perform the jobs available to them. As we know, many people with low incomes in blue collar jobs struggle to keep them into their 60s. And, when there are jobs available for them, they can be physically taxing and not jobs they can perform any longer.
The best solution for treating people with lower incomes more fairly would be to increase Social Security benefits for people with lower incomes in a progressive way. If we expand Social Security benefits as many members of Congress are now calling for, it would be easy to design the increase to disproportionately go to those with the lowest earnings. Our retirement policy should focus on ending what amounts to discrimination against a large cohort of people with lower incomes, not aggravating the discrimination through raising the retirement age.
If you’d like to understand what your retirement benefits will be when you retire, click here. If you’d like to read more about how to strengthen Social Security, click here. Polls show that a strong majority of Americans support strengthening Social Security. And, if you’re interested in reading more about the growing inequality gap for older adults, read Theresa Ghiraducci’s Senior Class: Americas Unequal Retirement in the American Prospect.