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Jim Lentini: The cost of raising the retirement age

Business Commentary

Posted: December 6, 2010 9:22 p.m.
Updated: December 7, 2010 4:55 a.m.

The normal Social Security retirement age should go up, according to the American Academy of Actuaries. Thomas Terry, chair of the Public Interest Committee at the AAA, Washington, has delivered that message in a letter sent on behalf of the AAA to the co-chairs of the National Commission on Fiscal Responsibility and Reform. The commission is trying to find ways to reduce the federal budget deficit and deal with Social Security and Medicare benefits obligations.

The AAA is a nonpartisan professional group formed to give actuaries a voice in the making of public policy. The AAA now supports the adoption of an increase in the retirement age, according to Terry.

Some say that an increase in the Social Security retirement age is equivalent to a benefit cut, and some have narrower concerns about the idea of raising the Social Security retirement age, such as the effects on workers in physically demanding jobs, Terry said.

In reality, Terry states, the steadily increasing U.S. life expectancy is giving workers what amounts to a de facto automatic increase in benefits. “Increasing the retirement age can contribute significantly to stemming this trend and make the program solvent and sustainable. To maximize the benefits of an increase in the retirement age, Terry said the federal government must support that increase with other actions.

He notes for example, that the Internal Revenue Service now prohibits tax-qualified pension plans from using a normal retirement age higher than age 65.

In the interest of consistency in signaling, Social Security, as well as pension plans, could benefit from reinforcement if plan sponsors were allowed to use a normal retirement age equal to that for Social Security.

According to Terry, the government should try to come up with mechanisms such as creating special income programs for workers in physically demanding jobs. It should also create programs to fight age discrimination, such as reductions in the payroll tax for older workers, to help specific groups of workers who might be affected more than others by an increase in the retirement age, according to Terry.

There is no question that our increased longevity has created problems that need to be addressed now, for benefits that we are required to pay into for our Social Security and Medicare. Yet what we see happening in Congress are moves to cut our benefits and increase the cost of these programs to the beneficiaries.

What we need is for Congress to address cutting government spending to ensure these programs remain solvent, beginning with the salaries, benefits and retirement benefits of those in Congress.

As taxpayers pay for the benefit plans that Congress enjoys, reducing expenses could be accomplished by eliminating the so-called “Cadillac” plans and requiring federal employees to live on the same benefit plans that taxpayers must.

And when the beneficiaries of Social Security (37 million and growing), do not get an increase in benefits (as has happened for the second year in a row), government pension plans should be frozen as well.

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investments, Inc. He can be reached at (661) 1254-7633. His column reflects his own views and not necessarily those of The Signal.


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