Human Nature

The New 65

Biology can solve the Social Security debate.

Here’s what we’ve learned from the Social Security debate so far. Republicans are right that the system is heading for bankruptcy. Democrats are right that personal retirement accounts, whatever their future merits, won’t pay off the system’s current debts. Republicans won’t raise taxes; Democrats won’t cut benefits. It looks like there’s no way out. But there is a way.

Every time Social Security has drifted into trouble, Congress has tweaked one formula or another to bring it back into balance. We’ve raised the payroll tax rate, means-tested benefits, and indexed them  to consumer prices. But one variable has never been properly adjusted. That variable isn’t a tax or a benefit. It’s the retirement age.

Social Security was designed 71 years ago by the Committee on Economic Security, a task force of five Cabinet-level officers under President Franklin Roosevelt. The committee’s report, issued in January 1935, said  the program would support old people who were “dependent,” “beyond the productive period,” and “without means of self-support.” This was consistent with Roosevelt’s overall economic security agenda, which was supposed to protect citizens against misfortunes that “involve loss of earnings.”

The committee’s chairwoman, Labor Secretary Frances Perkins, explained  these principles to the public in a national radio address, the 1935 equivalent of a televised speech. The program’s mission would be “protection against the loss of income,” “providing against need and dependency in old age,” and easing “the hazards of old age to the many workers whocould not, unaided, provide for themselves.”

The committee decided that a support system for people who were no longer productive and could no longer provide for themselves should begin at age 65. Its report calculated, “Men who reach 65 still have on the average 11 or 12 years of life before them; women, 15 years.”

That was true in 1935, but not today. According to the latest government data, men who reached age 65 in 2002 had on average 16.6 years of life before them, and women had 19.5 years—about five years more than Social Security originally budgeted for. At age 70, men and women in 2002 could still expect more remaining life (13.2 years for men, 15.8 for women) than their 65-year-old counterparts could in 1935. Even a 75-year-old man in 2002 could expect 10.3 more years, nearly as many as a 65-year-old man could expect in 1935. If you were designing a system today for men with 11 or 12 remaining years and for women with 15 remaining years, you wouldn’t set the retirement age at 65. You’d set it between 70 and 75.

Opponents of a higher retirement age say life expectancy is the wrong number to look at. According to AARP, “The fact that most people are living longer does not necessarily mean they can work longer; those in physically demanding jobs would be hit hard by a higher retirement age.” Fair enough. So let’s look at the number of physically demanding jobs. And let’s look at how many people, given those demands, could work longer.

In its 1935 report, Roosevelt’s committee attached a table of occupations held by employed Americans aged 55 or older. More than 80 percent worked in agriculture, manufacturing, trade, or domestic and personal service. Fewer than 10 percent worked in professional service or clerical occupations. Today’s economy looks nothing like that. In 1999, Eugene Steuerle and Richard Johnson of the Urban Institute reported that the percentage of Americans working in physically demanding jobs—defined as jobs “requiring frequent lifting or carrying of objects weighing more than 25 pounds”—had fallen from more than 20 percent in 1950 to less than 8 percent in 1996. Two years ago, Johnson and Steuerle added  that the percentage of 55- to 59-year-old men who said health problems interfered with their jobs had declined from more than 27 percent in 1971 to less than 20 percent in 2002. The decline of physical labor is only one reason why older Americans can work more easily. The other reason is that these people are healthier than folks their age used to be. Last year, Johnson analyzed data on 55- to 60-year-old workers who said their jobs always required physical effort. In 1992, a plurality of these workers said they were in excellent health, and 17 percent said they were in fair or poor health. By 2002, a majority were in excellent health, and less than 11 percent were in fair or poor health. Over the long term, the changes in onset of disease are amazing. Two years ago, economist Lorens Helmchen compared American men born between 1830 and 1845 to those born between 1918 and 1927 (they would be 78 to 87 years old today). On average, the latter group got arthritis, heart disease, or respiratory disease a decade later in life than the former did.

What does this mean for Americans 65 and older? Can they work longer than people of that age did in 1935? If so, how much? If 65 marked the threshold between productivity and dependency seven decades ago, where is that threshold today? What is the new 65?

To figure that out, Slate asked Kenneth Manton and XiLiang Gu of Duke’s Center for Demographic Studies to crunch the numbers. Manton runs the National Long-Term Care Survey, the nation’s most complete study of changes in older people’s physical abilities. Last year he testified before Congress on the study’s fiscal implications. In his calculation for Slate, Manton began with a 2002 paper by Dora Costa  of MIT, which found that “functional limitation as measured by difficulty in walking, difficulty in bending, paralysis, blindness in at least one eye, and deafness in at least one ear has fallen at an average rate of 0.6% per year among men age 50 to 64 and age 60 to 74 from the early twentieth century to the early 1990s.” Manton combined this equation with a 2003 analysis by Robert Fogel of the University of Chicago and a 2001 paper by Manton and Gu, which showed an average 1.7 percent annual decline in chronic disability prevalence among Americans 65 or older between 1982 and 1999. Calculating backward, Manton deduced that at age 65, active-life expectancy—the average number of years a person could expect to live free of chronic functional impairment—was 8.8 years in 1935, 11.8 years in 1982, and 13.9 years in 1999. Based on the trend line, he projects that by 2015, active life expectancy will be 17 years. In short, if you were designing a system in 1999 for people who could expect as many active years as a 65-year-old person could expect in 1935, you’d set the retirement age at 70. And by 2015, you’d raise it to 73.

Twenty years ago, Congress made a move in this direction, programming the retirement age to rise from 65 to 67. But the change didn’t begin taking effect until 2003 and is being phased in so gradually it will take 24 years  to complete. That’s slower than the rate of increase in active-life expectancy. The “rising” retirement age isn’t catching up with our biology; it’s falling behind. Meanwhile, over the last four decades, Congress scaled back and eventually abolished the Retirement Earnings Test, which Roosevelt had proposed in order to confine  Social Security to people who couldn’t work. The RET rollback was supposed to encourage work. Instead, despite improvements in health and ease of work during those decades, the percentage of people aged 65 or older who earned income apart from assets or pensions fell from 36 percent to 22 percent. More old people can work without giving up any Social Security benefits, but fewer are doing so. Thanks to pensions and Social Security, they don’t have to.

What about the minority of people whose strenuous jobs or poor health make work after 65 too difficult? The Greenspan Commission, which proposed the original age hike to 67, solved that problem in 1983. Social Security already has a separate benefits program  for people with disabilities. “The disability benefits program can be improved to provide cash benefits and Medicare to those between age 62 and the higher normal retirement age who, for reasons of health, are unable to continue working,” said the commission.

How much money would a higher retirement age save? According to the Congressional Budget Office, if the ascent to age 67 were accelerated and completed by 2016, and if the retirement age kept rising two months a year until it hit age 70 in 2037, and if the rate of increase then slowed to one month every two years, Social Security outlays in 2050 would decline by 12 percent. A fully adjusted retirement age–one that kept pace with biology instead of lagging 40 years behind it, as the CBO’s scenario does–would generate an even bigger surplus. By one rule of thumb, every year of recipient eligibility consumes about 7 percent of Social Security’s financial commitments. Compared to the currently assumed retirement age of 67, an increase to age 73 could cut the government’s obligations by as much as 40 percent. Either way, the projected Social Security deficit would disappear–and with it, the Democratic objection to personal retirement accounts, which could be funded out of the new payroll tax surplus.

Seldom does justice so perfectly suit convenience. Raising the retirement age would honor the principles of productivity and self-sufficiency that originally defined the age group deserving of benefits. It would also collect a fair return on what Manton calls “human capital.” As a share of GNP, American spending on health care has doubled  since 1975. A third  of the increase over much of that period has gone to fighting heart disease, lung disease, mental illness, cancer, and hypertension. Medicare  has done wonders for old people’s health, but the government’s budget for health care is far outpacing revenue. The financial reward for that investment is that people can work later in life, paying taxes instead of collecting benefits. And they should.

Human Nature thanks Jesse Henry Stanchak and Rachel Sugar for extensive research assistance.