Rubio and Crist: The Reality of the Retirement Age in Social Security

Now we have the spectacle of Repbulicans battling it out over Social Security, in Florida of all places:

Marco Rubio appeared on a Sunday talk show this month to say something remarkable. The Republican running for Florida’s Senate seat suggested we reform Social Security by raising the retirement age for younger workers. Florida is home to 2.4 million senior citizens who like to vote. The blogs declared Mr. Rubio politically suicidal.

The response from Mr. Rubio’s primary competitor, Gov. Charlie Crist, was not remarkable. His campaign slammed Mr. Rubio’s idea as “cruel, unusual and unfair to seniors living on a fixed income.” Mr. Crist’s plan for $17.5 trillion in unfunded Social Security liabilities? Easy! He’ll root out “fraud” and “waste.”

Let’s talk Republican “civil war.” Not the one the media is hawking, that pits supposed tea party fanatics like Mr. Rubio against supposed “moderates” like Mr. Crist. The Republican Party is split. But the real divide is between reformers like Mr. Rubio and Wisconsin Rep. Paul Ryan, who are running on principles and tough issues, and a GOP old guard that still finds it politically expedient to duck or demagogue issues. As Republicans look for a way out of the wilderness, this is the rift that matters.

The issue of the solvency of Social Security is a serious one.  The issue of the retirement age isn’t.

If you’re getting Social Security statements (and most Americans do) look at it carefully.  You have a monthly pension for retiring at 62, a higher one at your “retirement age” and a yet higher one if you retire beyond 70.  The answer to the retirement age issue is staring you in the face.

The whole concept of a retirement plan is to save money during the working years and draw it out after that.  If you start earlier, you draw out longer, and the payments are less.  If you retire later and draw out shorter, the payments are more.  From a time value of money standpoint, however, the result is the same.  The options are sensible (on paper at least.)  There’s a case to be made that, even with the lower payments, you’re better off retiring at 62, although I’ve heard politicians slamming people’s choice to do so.

A better implementation of the concept would be to have a sliding scale, i.e., for each year you defer retirement, you get a higher monthly stipend.  But the options, as they presently stand, are reasonable from an actuarial standpoint.

What isn’t reasonable is the way our government has pillaged the system by diverting Social Security taxes into the general revenue and driven down the effective rate of return.  That not only makes the options difficult to analyse from a quantitiative standpoint, it puts the ability of the state to meet its obligations in the long run into question.

Crist’s comeback to attacking “waste and fraud” is a joke.  He’s taking a leaf out of the old Democrat playbook by trying to morph a financial debacle into a moral crusade when in fact the old ways are both immoral and fiscally irresponsible.  Hopefully the voters of Florida–retirees included–will see through this charade and put the Hispanic in the Senate.

2 Replies to “Rubio and Crist: The Reality of the Retirement Age in Social Security”

  1. I know somethings about social security. First, it’s an insurance program. So when the program pays out more than it has coming in, it’s no longer really insurance, it’s welfare. It should not be welfare.

    Clearly, the retirement age needs to be raised. That includes the ridiculous ‘early’ retirement age of 62. Early retirement should be 65 or 66, regular retirement should be about 69.

    Also, you only need to have 40 quarters to get this insurance. That is doubly ridiculous. It means you need to work a few months every year, for ten years out of your entire life. The 40 quarters need to be raised to 62 or 66. That is much more reasonable.

    that’s all you need to fix the system. easy.

    1. It is an insurance program, but some understanding of how that works in terms of cash flow makes analysis of the situation better.

      In theory, the whole idea is for someone to pay into the system during their working career. At the point of retirement, the present value of the payments into the system are evaluated and a cash flow based on the time from retirement to anticipated time of death can be computed. The payments are based on two factors: the present value of the pay in (which in turn depends upon the level and number of payments) and the estimated time from retirement to death. If the present value is lower, or the time of retirement is higher, the payments should be lower.

      I agree that, if people live longer, the retirement age should increase. This makes sense. But there’s more than one way to go about making that happen. You could say, “you’re going to live longer, so the retirement age will be raised before we compute and start benefits,” or, “you can retire earlier, but it will cost you.” Doing the latter puts the decision in the hands of the retiree, and I’ve consistently felt that it’s better to put decisions in people’s lives in the hands of the people themselves.

      The core problem with Social Security is that the present value is a mirage because Congress has applied the revenues from SS takes to general revenue and spent it, leaving the infamous “IOU’s” in their place.

      In reality, the best solution would be to convert Social Security into a defined contribution plan. Even if U.S. government securities were the only allowable assets of the fund, the rate of return would be better than it is and the accounting would be much more transparent.

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