Friday, November 05, 2004

Social Security

Andrew Samwick argues that the solution to the problems of social security is to raise the retirement age from 65 to 73 -- and that this has to be done by 2080. Samwick argues that raising the retirement age makes more “intuitive” sense than other adjustments, like changing from wage indexing to price indexing (the proposal favored by CBO Director Douglass Holtz-Eakin). Quite plausible: Social Security is about retirement and there is no reason that retirement should change from being long enough to write your memoirs (as it was 50 years ago, if you take the difference between life expectancy and retirement age) to being long enough to live another life. Adjusting social security to account for increased life expectancy is eminently reasonable.

What’s striking about this, though, is how...unpressing the situation seems. Just a half year increase in the retirement age per decade solves our problems! I wish I knew enough to know if Samwick’s numbers are right -- but they probably are. In the mean-time, the program is solvent; and that means for the next twenty years or so. A lifetime in politics! Compared to other problems this seems so...distant. And the solution is so technocratic. So why the big political fuss about it? Why will this issue dominate political discussion for the next few months, at least if Bush presses ahead with privitization plans (and nothing too dramatic happens in Iraq, unlikely)? The answer is obvious: baby boomers care and baby boomers vote. This is why politics is so frustrating: things which just require a little technocratic tweek become political and ideological footballs and some random constituency sways discussion away from much more pressing issues.


Blogger Andrew Samwick said...

Others have done these calculations and come up with similar numbers. See this actuary's testimony for an early example.

Intuitively, an easy way to see why a six year increase is the right ballpark is to note that, by 2080, life expectancy at age 67 will be about 19-20 years. At the same time, the cost rate for the system will be about 19-20 percent of taxable payroll. Trimming 6 out of 20 years from the length of time spent in retirement will reduce the cost of the program by about 6 out of 20 percentage points, which is the annual deficit that year. You can find the various numbers underlying these (very rough) calculations here.

I have enjoyed your recent posts and thank you for referencing my blog in them. Best of luck with your new venture. --Andrew

7:04 PM  

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