(April 2002) In the United States, efforts to stop terrorism and restore economic growth have superseded the Social Security issue for the past several months. But the clock keeps ticking, and baby boomers are nearing retirement. The public and Congress need to decide how to restructure Social Security to enhance its long-term solvency. Structural changes, even if enacted this year, probably would not take effect before many boomers start collecting retirement benefits, and further delay will only make changes more difficult.
The first of the boomers will be 65 in 2011, often cited as the year when the age wave will arrive. Yet for over a decade, more than half of the new recipients of Social Security benefits have opted to collect them at age 62, and close to 70 percent have done so before age 65. Consequently, it is more realistic to anticipate the leading edge of the boomer wave hitting in 2008 — only six years from now.
A recent Census Bureau projection of people ages 60 to 64 indicates the numerical impact of the arrival of the boomers (see table below). From the low levels of the economically depressed 1930s, the number of births rose in the early 1940s despite World War II, and then accelerated in the late 1940s with the end of the war. Further increases occurred in the family-oriented 1950s, with the baby boom peaking in the late 1950s and early 1960s. These trends mean that the number of people 60 to 64 years old is projected to rise 19 percent between 2000 and 2005, and 51 percent by 2010. By 2020, the number of adults ages 60 to 64 is expected to be nearly twice the number in 2000. Thus, the numerical impact of the boomers will be both substantial and long-lasting.
Number of People Ages 60 to 64
|Year||Number (in millions)||% Change Since 2000||5-Year Birth Intervals|
*The baby boom lasted from 1946 to 1964.
Sources: U.S. Census Bureau, 2000 data (www.census.gov/Press-Release/www/2001/ tables/dp_us_2000.PDF, accessed Feb. 22, 2002); 2005-2025 data (www.census.gov/ population/www/projections/natsum-T3.html, accessed Feb. 22, 2002).
Furthermore, the number of years during which the swelling number of retirees will be able to collect their benefits may continue to grow beyond the current averages of 18 years for men and 22 years for women. The duration of retirement has grown because of increased longevity and a lower average age at retirement. From the early 1950s to the late 1990s, the median age at which workers 50 years of age or older exited the labor force fell about five years for men and six years for women (see table below). The average age at initial award of Social Security benefits followed a very similar trajectory.
Estimated Average Age at Retirement of Men and Women
|Labor Force Data1||Social Security Data2|
Notes: 1: Labor force data indicate median age at exit from the labor force for reasons other than death of five-year cohorts ages 50 and older. 2: Social Security data indicate mean age at initial award of benefit for retirement or disability, the latter limited to those ages 50 and over. The disability data have been included to provide better comparability with the labor force data. 3: In Social Security data for 1950-1955, age data for disability awards are not available. If they were, the means would be lower. 4: Average ages in the labor force series for 1990-2000 were calculated from data adjusted to levels prior to the 1994 revision of the CPS. Unadjusted medians are: men 1990-1995, 62.1; men 1995-2000, 62.0; women 1990-1995, 62.6; women 1995-2000, 61.8. 5: In the Social Security series, the mean retirement age for 1997 was 65.4, much higher than the means since the 1960s or in 1998 or 1999. It was, therefore, regarded as an anomaly and disregarded. The data for both women and men are limited to 1995-1999.
Sources: Social Security Bulletin, Annual Statistical Supplement, 1999 (Social Security Administration, 1999); and Bureau of Labor Statistics. For more information about the labor force data, see Murray Gendell and Jacob S. Siegel, “Trends in Retirement Age by Sex, 1950-2005,” Monthly Labor Review, July 1992, pp. 22-29.
Since longevity is expected to continue to increase — with the only questions now being how fast and by how much — whether retirement will continue to lengthen will depend on the future course of the median age at exit from the labor force. Economist Joseph F. Quinn has contended that recent changes in public policy and in the private sector have begun to reverse the trend to early retirement. But another economist, Dora L. Costa, doubts that these changes are strong enough to counter the influence of the long-term increase in the income of workers, which she regards as the main reason for the decline in retirement age and for the great increase in attractive and affordable leisure activities available to the elderly. Given this uncertainty about whether or when retirement age will reverse its downward course, and about the pace and extent of the rise in longevity, it would be unwise to expect any shortening of retirement. It would, rather, be prudent to expect some further expansion, albeit a modest one.
Some policy changes are now taking effect. Between 2000 and 2005, the normal retirement age of 65 is being raised two months per year. When it reaches 66, as it will in 2008, it will not rise again (to 67) until 2017. Also changing is the percentage by which Social Security benefits are reduced for people who choose early retirement. When the full retirement age was 65, taking the benefit at 62 meant receiving only 80 percent of the benefit available at 65; when retirement age reaches 66, the comparable figure will be 75 percent. It is doubtful that this change will reduce the percentage of workers taking the benefit at 62 because the trade-off between getting the reduced benefit for years and getting the full benefit at the normal retirement age will be no less favorable than before. In both cases, the worker who does not collect before the normal retirement age will have received less money for the first 12 years.
The retirement of the first of the baby boomers is imminent. Their sheer numbers will swell the size of the retired population for two decades, and they will be collecting Social Security benefits for a long time. We cannot afford to keep putting off coping with this issue.
Murray Gendell is senior research associate at Georgetown University’s Center for Population Research.
For More Information
See Murray Gendell, “Retirement Age Declines Again in 1990s,” Monthly Labor Review, October 2001, for an account of the disagreement between Professors Quinn and Costa on the relative strength of the factors likely to determine the future course of retirement age, and for a fuller description of both the decline in the average age at retirement and the increase in its duration. Articles in the Monthly Labor Review, published by the Bureau of Labor Statistics, may be accessed from www.bls.gov. In the “Publications and Research Papers” section, click on “Monthly Labor Review Online,” “Archives,” and “October 2001, Vol. 124, No. 10.”