Trending
Written by: Eugene Steuerle
Recently, I received a thoughtful note from Mr. Joe Vitti from Indianapolis that I quote with permission. He questioned a New York Times column I wrote with Glenn Kramon, where we argued that existing government retirement policy ran counter to society’s need for workers.
Mr. Vitti asked, “about workers who get ‘aged’ out of their jobs due to employers who wanted to eliminate their high wages, vacation time, and higher health costs from the bottom line.” He noted that he “took a buyout at age 61 ½ as [his] company was doing staff reductions.” Many management employees didn’t even receive severance pay because of the lack of a union contract. “I would have liked to work until at least age 65,” he says, but “had no choice but to apply for early Social Security,” given “a mortgage, ACA healthcare, and other household expenses to pay.”
Mr. Vitti is the type of person our current retirement system should better protect. I have long struggled with how we can do so without continuing our regressive and poorly targeted system of providing more and more years of retirement support, mainly to society’s healthiest and wealthiest members. Here is an edited version of my response to him.
________
Dear Mr. Vitti,
Thank you for your note on retirement issues. I am honored that you care enough to write about problems for those forced into retirement.
Let me be clear. One can only write a small amount in a column. I’m not asking you to agree; please understand that a piece of that length can only cover so much.
I favor redesigning Social Security to serve better people like you, who are at the heart of what the system should be about.
However, it has certain features that clearly are regressive and only serve people like you by providing much more to people without similar claims to priority in public funding.
My study with Damir Cosic indicates that the provision of more years of benefits under Social Security has largely favored higher-income people. First, the system grants them higher annual benefits. Second, they tend to live longer than lower earners. Lower earners are much more likely to die by age 62; those so unfortunate get zero out of the expansion of years of retirement benefits due to living longer. Also, benefits for lower earners on disability are not affected by the retirement age, so they don’t share in that expansion of benefits.
Under the current system, we are close to a system in which one-third of adults will be eligible for Social Security for about one-third of their adult lives.
I also study what the government does for children and workers. Their share of government spending has been declining for several decades.
The bottom line is that we need workers, especially with the decline in the birth rate and the resulting deterioration in workers who support each retiree. The current program provides many disincentives to work for all people, not just those in your circumstances.
Yes, we should raise taxes, and Social Security and Medicare will almost certainly receive tax increases. However, I still worry about how to allocate those increases to meet our society’s most essential needs.
As for the U.S. healthcare cost, it now averages about $36,000 per household. That’s the average. Of course, many people cannot afford this. But they are affording it indirectly, sometimes through taxes and sometimes when Congress shifts burdens to future generations by borrowing from abroad or cuts back on other programs serving them.
So, that still leaves the issue, you can correctly argue, of how to reform the system as a whole to deal with individuals in your circumstances. Among other things, Karen Smith and I have shown that a well-designed minimum benefit could essentially eliminate poverty among the elderly. That would provide those with lower lifetime earnings with higher lifetime benefits, though not through more years of benefits for everyone, including those with higher lifetime earnings. I also have suggested a more liberal definition of disability after some earlier age, like 60. Social Security can also give individuals greater retirement flexibility by allowing them to claim partial benefits and adjust that amount over time according to their needs. Social Security would provide them a generous allowance, similar to annuity adjustments already in the system, for the amount they don’t take upfront.
Our retirement and labor systems discriminate against those who want to work longer. You say you would have liked to work until age 65. This entire retirement system, private and public, has not adjusted to your needs or the effect of the decline in the birth rate on the labor market.
My wife worked as a teacher all her life, and I had an above-average wage level for most of my life. I don’t believe we can solve our budget issues—paying for older people, children, workers, and so on while controlling our deficits—by granting people like me even more years in retirement at a higher benefit rate.
Have I dealt with every sympathetic case? No. I remain open to other options. But I don’t favor options that would give people like me $2 or $3 for every dollar they provide to you. Of course, neither of us will be affected much by any future reform. Most reforms would only apply to future retirees, who, on average, are promised significantly higher benefits than current beneficiaries.
Again, thank you for your letter. You stated your position very well, and I hope you accept this response as respectful of that effort.
________
Addressing the issues Mr. Vitti raises remains one of the most significant challenges confronting Congress in the Social Security reform that it must soon undertake. Comments are welcome.
Related: Competition Is a Win-Win for Clients, Firms, Industry and Society