3 Reasons Increasing Social Security's Full Retirement Age Is a Tough Sell

As the old saying goes, sometimes the truth hurts. For Social Security, that truth is the reality that its current payout schedule isn't sustainable, at least according to the newest Social Security Board of Trustees report.

Explaining Social Security’s imminent cash shortfall

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Beginning this year, and continuing in each subsequent year, the Social Security program will pay out more in benefits than it collects in revenue. Though this net cash outflow will start off relatively mild at first — an estimated $1.7 billion in 2018 and $0.2 billion in 2019, per the intermediate-cost model — it's expected to accelerate rapidly in 2020 and beyond. By 2027, $169 billion more will be paid out in benefits than is collected by the program. By sometime in 2034, Social Security's $2.9 trillion in asset reserves, which were built up in the 35 years since the Reagan reforms were passed, will be completely gone.

The silver lining through all of Social Security's issues is that the program is in absolutely no danger of disappearing or going bankrupt. Though the depletion of its asset reserves will remove one of the program's three funding sources (the interest income earned on its excess cash), the payroll tax and, to a lesser extent the taxation of benefits, will ensure that there's money to be divvied out to eligible beneficiaries.

The downside, though, is unmistakable. Once this excess cash is gone, it'll necessitate the need for a sizable cut to benefits of up to 21% for current and then-future retirees in 2034. After all, the trustees have estimated that a $13.2 trillion cash shortfall is looming between 2034 and 2092.

Solutions a-plenty, with no clear consensus

For its part, Congress can approach fixing Social Security in three ways. It could:


The interesting thing is that all three methods would work to resolve Social Security's long-term (75-year) cash shortfall.

So why haven't we seen any of these solutions implemented? Well, last week I examined why "taxing the rich" hasn't passed muster in Congress. As for the latter solution, it would require bipartisan cooperation on Social Security reform, which seems virtually impossible to achieve at the moment. That leaves the idea of gradually raising the full retirement age –- the age at which you become eligible to receive 100% of your retirement benefit, as determined by your birth year — as a possible solution.

How would raising the full retirement age help, exactly? Basically, it would coerce seniors to either wait longer to receive their full benefit, or to accept a steeper reduction in their monthly payout if they chose to claim early. This would lead to a smaller number of years with a full retirement benefit, or a reduced benefit over a potentially longer claiming period. Either way, it reduces the long-term expenditures of the program, thus removing the long-term cash shortfall.

Here’s why raising the retirement age is a tough sell

So why hasn't gradually raising the full retirement age been considered? My suspicion is that it's a tough sell for three reasons.

1. It isn’t the most popular solution with the public

First, there's actually a more popular solution with the American public. Back in 2014, The Washington Post and the Center for Retirement Research at Boston College offered an informal online survey that asked respondents to choose among 12 solutions to fix Social Security. Half of these solutions involved raising revenue, while the other six reduced expenditures. Respondents were free to choose as many solutions as they would stand behind.

The results? The second-most popular solution was the idea of raising the full retirement age, which at the time garnered the support of close to 45% of all online respondents. Comparatively, there was a big drop down to the third and fourth most popular solutions.

However, there was also a very sizable gap between the public's top choice, which was to "tax higher earnings," and the idea of raising the full retirement age. Approximately 70% of respondents favored the idea of taxing wealthier Americans. It could be tough to pass legislation that ignores what the American public wants most.

2. It could adversely affect low- and middle-income Americans set to retire in the future

Another reality to fixing Social Security is that no matter what solution is implemented, someone is going to lose. With the "taxing the rich" strategy, the well-to-do would be required to pay more into the program while not seeing their benefit rise one red cent by retirement. And when it comes to raising the full retirement age, it would protect existing retirees, while throwing future beneficiaries to the wolves.

Put in another context, raising the full retirement age is nothing more than a benefit cut on future retirees. As noted, these retirees would have to either wait longer to receive their full payout, or they'd be required to accept a steeper reduction to their monthly payout if they claimed early. A reduction in lifetime benefits wouldn't sit well with the low- and middle-income workers who are going to be reliant on Social Security in some capacity in say 20, 30, or 40 years. Let's not forget that this is a program designed first and foremost to protect low-income seniors, and raising the retirement age could compromise that purpose.

3. Democrats believe they have the better plan

Finally, don't discount political hubris. Just as Republicans believe that raising the full retirement age and counteracting increased longevity is the logical solution to Social Security's woes, the Democrats believe that raising or eliminating the maximum taxable earnings cap on the wealthy and raising additional revenue is the smarter move. Since both of these solutions work, neither party has any particular incentive to back down and find a middle-ground with the opposition.

Making matters worse, passing amendments to the Social Security Act will require 60 votes of support in the Senate. It's been four decades since either party had a supermajority in the Senate, meaning bipartisan cooperation is a must if anything is to get done. And, as pointed out earlier, bipartisan cooperation with regard to Social Security is virtually nonexistent.

At some point this will have to change; otherwise, it won't just be the wealthy or future beneficiaries that'll lose out. If political hubris keeps these parties at opposite ends of the spectrum on Social Security, everyone loses.

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