When people set out to fix Social Security, there’s one unpleasant idea at which they all seem to arrive: Americans are retiring too early. Alas, from the standpoint of the system’s finances, they’re right. The system was designed in an era when far fewer workers ever lived to age 65. If they did last that long, they survived, on average, fewer years thereafter. Also, fewer women (who live longer than men) were in the workforce, building up entitlements of their own. So when lives lengthened and the workforce changed, the system wound up paying pensions to more people than it counted upon, and paying them for longer periods. [26]
Moreover, Social Security was actually designed to induce retirements back in the 1930’s, when older workers were viewed as impediments in the way of jobs for young people. Today we look at spry geezers riding around the country in their tour buses and campers, and sort of resent that they aren’t at work. If they’re energetic enough for all that hiking and dancing, why do they need young people to support them?
There’s another side to this, however. Do we really want to design our lives around the financial needs of the system? Which is for which? Is the system there for the people’s sake, or do the people exist for the system? Why should there be a "normal retirement age"? Why not offer a panoply of alternatives?
Most of us, if truth be told, have a love-hate relationship with our jobs. Economists, speaking a sort of shorthand, analyze retirement as a trade-off between "leisure" and "income". In actuality, the attractions on either side of the trade involve a good deal more than those terms suggest. Retiring means you never have to write another resume; never have to humor customers or a boss any more; need never again sacrifice quality to beat a deadline; don’t have to put up with insufferable co-workers; can dress as you please. It isn’t just lolling in a beach chair. Pulling in the other direction are the satisfactions of a job: more money, to be sure, but also status in the community. It’s nice, when asked what you do, to be able to answer what you do, and not merely what you did. Also, there is companionship as well as aggravation in the workplace: some co-workers are a part of one’s social life. Not to mention that at least a few people enjoy the activities for which they are paid.
So we might like to put together our own package of work and play for our later years.
A properly designed Social Security system shouldn’t care when individuals begin their retirement — only that they pay for the retirement which they choose. Given its best guess as to how long people will live, the system can offer retirement packages that support them for as long as they like, provided they pay enough beforehand. That is, any actuarially fair bargain should be acceptable to the system.
The existing system does in fact provide people with some leeway in their choice of retirement age. The complaint is that by design it heavily encourages a "normal retirement age" of sixty-five, penalizes working beyond that age, and inadvertently rewards still earlier retirement. Or rather, that’s the complaint of those who propose to "reform" the system by raising the normal retirement age. My complaint takes a different tack: the underlying regimentation of a "normal retirement age" is unnecessary to start with. A better reform would be an actuarially fair spread of choices. This would indeed offer incentives for working longer, but also opportunities for escaping the treadmill. People should be allowed to make their own trade-offs between the rewards of retirement and those of the workplace, provided only that the quid pro quo be fair and sustainable.
"But wait!", I hear a reader cry. "What sense does it make to propose a richer, more generous range of retirement choices, in a discussion whose point is to save Social Security from bankruptcy? Social Security is unable even to go on furnishing the choices it already does offer; opening up new alternatives to retirees would cost still more." The answer is that nobody is proposing a free lunch: without penalizing anyone in an actuarial sense, the system could offer people an unlimited range of choices. Financially, all that matters is that the curtailment of benefits for early retirement, and the enlargement of benefits for later retirement, go far enough. This might look draconian to those who live for the day they escape their jobs, but they’d have nothing to complain of if the penalty for early retirement faithfully reflected the average cost to the system.
There is, of course, a minimum which the system would like people to buy. Remember the idea of "career insurance"? Here’s a dirty little secret: its benefits are not only for the people having the careers. The rest of us want each worker to have career insurance because we don’t want to end up with a large mass of destitute seniors living in the streets. We’re insuring ourselves against an unpleasant social environment.
Thus, any socially acceptable Social Security system is going to involve some minimum level of participation, required of every worker. The difficult part is to decide upon that minimum. Set it too low, and the "safety net" comes to nothing but an air mattress lying upon a concrete floor. Set it too high, and the option to buy early retirement will be a moot point: most people will have trouble enough meeting the minimum.
Bear in mind, too, that while the system can allow any actuarially fair combination of payments and retirement age, the full "safety net" includes disability insurance as well as a pension. Any "minimum" which is imposed will necessarily be complex: later retirement (which costs the worker less) will have to be accompanied by longer disability coverage (which costs more).
Where’s a happy medium? We’ve already seen that we have to let go of the "replacement wage", or the system is beyond repair. We shall have to agree upon one principle: a flat minimum, with extra benefits available at an extra price. Even this much goes against the grain for many people who want Social Security to be a vehicle for income redistribution. Ideally, they would like incomes in old age to be equal, with only a narrow spread to reflect any difference in people’s past performance. The more Social Security offers extra rewards for extra payments, the further it diverges from this ideal. Redistributionists tend to be unimpressed with actuarial fairness, because, at bottom, they challenge the fairness of the incomes out of which people are able to make payments in the first place.
Still, the system has to be sustainable, and redistributionists should reflect that even a system which limits itself to "insurance against poverty" does redistribute income. Like any insurance, it redistributes income from those who avoid the hazard which is insured against to those who suffer it. To make the Social Security system sustainable, the most ardent of egalitarians may have to settle for only this much redistribution.
That still leaves the question of the minimum. People can argue all night over what’s a minimum living standard. No matter how high it’s set, we can always think of something it doesn’t include, which we can’t do without. On the other hand, when presented with the prospective cost of the minimum living standard we’d like, we can always persuade ourselves that it ought to cost less, and would cost less if only someone else were made to pay for it.
There’s no way to settle the details except through the usual commotion and bargaining of the political process (whether in the public sector or the private). All I can assert here is a set of guidelines:
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