Should the Social Security Age Be Raised?

(This article originally appeared on MoneyTips.com.)

If you want pure entertainment, put a bunch of politicians in a room full of seniors and discuss raising the Social Security age. Chaos will ensue.

The stereotypical political arguments will probably break out. Republicans are all mean old men who want to take benefits from seniors and let Grandma live off cat food. Democrats are reckless spendthrifts who ignore potential insolvency and pander for votes regardless of the effect on taxpayers or the country at large.

As fun as stereotyping may be, there are serious people with reasonable arguments on both sides of the issue. Republicans are right in that the system is faced with increased costs that must be dealt with, and Democrats are right to voice concerns about the effect on seniors.

What are the pros and cons of raising the Social Security age, and what would be the overall effect?

Let's start by throwing out another question: Which Social Security age are we talking about?

Most arguments refer to the Full Retirement Age. For upcoming retirees, that is either age 67 if you were born in 1960 or later or age 66 otherwise, with scaled increases in two-month increments starting with those born in 1955.

However, there is also a minimum age at which you can file for Social Security (62) but with reduced benefits, and you can receive extra benefits by waiting until age 70 to file (up to 8 percent per year you delay). Keep this in mind as we consider options.

What happens if we raise the Full Retirement Age?

Obviously, full benefits are delayed by each year we push it back, but that may be partially offset by higher Social Security benefit amounts. Benefits are calculated based on a formula using your highest 35 years of earnings.

Assuming you are fully employed up until you retire and making your highest salary at that point, you get one more year of high earnings to displace the lowest earning year.

Democrats would rightly argue that those who are unemployed near retirement age (or working in lower-wage jobs as retirement approaches) do not see the benefit and are disproportionately harmed.

What if we raised the earliest possible age to file for benefits?

Strangely enough, this actually could benefit poorer Americans, or so Republicans would argue.

It is true that if you are filing for Social Security benefits early, you probably need the money right then — but you are paying a huge price over the long run, just as with a high-interest loan. Filing at age 62 cuts your lifetime benefits by 30 percent, costing you thousands of dollars over the average lifespan.

Democrats would counter that if you do have to file at age 62, you would not be able to bridge the gap to 65 without assistance.

Arguably, the system could save more money by reducing one benchmark age — the age where extended benefits stop accumulating.

Congress could also choose to lower the percentage for increased, postponed benefits, perhaps to 4 percent instead of 8 percent. Democrats would see this as a progressive way to ease the Social Security burden; Republicans would argue that we are punishing good fiscal discipline.

Keep in mind that this entire argument is predicated on the argument that Social Security needs more money to deal with the influx of boomers and today's longer lifespans — in other words, fewer workers supporting more retirees for a longer time.

Is Social Security really heading toward insolvency?

Not really, even with the influx of boomers. The Social Security Trustees Report shows that the reserve Social Security trust funds will be exhausted in 2033. After that, payroll taxes will be enough to cover 75 percent of obligations for the next 55 years. The system needs help, but the situation is not dire.

What about the Trust Fund being raided by Congress?

That is true to an extent. Congress does owe the Social Security Trust Fund over $2.7 trillion that it has borrowed and not repaid. Even so, you will get your benefits — it is just that the Treasury has to borrow the money from elsewhere to repay the trust fund to cover that amount. Remember those debt-ceiling arguments and why Social Security checks would not go out if the debt limit wasn’t raised?

In essence, Social Security is safe to the extent that Congress does not rewrite the rules. Feel better now?

The main point is that while Social Security is not insolvent, questions of benefits and overall government spending really do matter. Taxpayers make up the difference.

In the meantime, all raising the Social Security retirement age does is reduce the odds that any one individual will get the full benefits that he or she put in.

It is fair to consider that we are living longer and the actuarial assumptions from the last retirement age revision are probably not valid anymore. It really does boil down to the age-old question of raising Social Security payroll taxes, reducing Social Security benefits or finding a reasonable compromise of the two to bring the Social Security Trust Fund back to full capacity.

However, we at MoneyTips.com are against raising the age simply to allow Congress to delay repaying the Trust Fund or raising payroll taxes just to give Congress a bigger pot of money from which to borrow. It just muddies the waters and detracts from the real argument — the correct balance of payroll taxes and benefits to meet our obligations to our seniors.