Saturday, November 13, 2004

Social Security Reform

The best way to reform Social Security is to raise the retirement age. When the Social Security Act was signed into law in 1935, the age at which full benefits could be collected was 62. In 1935, life expectancy in the United States was a shade under 62. This led to Social Security earning a nickname that was something to the effect of "the best insurance policy you'd never collect."

Today, the retirement age is between 65 and 67, depending on the year the recipient was born. However, the life expectancy in the United States is now over 77. The reason why Social Security WILL run out in its current form is that for every worker paying into the system, many more people are collecting benefits now than in 1935. It then follows that it is only a matter of time before the supply of funds is depleted.

I daresay that today's Social Security system is a totally different creature than the one contemplated by the legislators and FDR in 1935. As the system was originally conceived, these benefits were effectively a "reward" (in the form of monetary support) to the elderly for living past the age at which they were expected to live. Today, these same benefits are support that the elderly now expect to receive to support them in the last years of their lives. These are two substantively different systems.

If the goal of reforming the current system is to keep with the spirit of the original system, then the most (if not only) sensible action to take is to raise the retirement age to match the life expectancy and keep it indexed to life expectancy as it increases.