Social Security Reform:

Raising Retirement Ages Improves Program Solvency but May Cause Hardship for Some

T-HEHS-98-207: Published: Jul 15, 1998. Publicly Released: Jul 15, 1998.

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Pursuant to a congressional request, GAO discussed raising the retirement age for social security benefits, focusing on: (1) how raising the retirement ages could affect social security's long-term solvency and the U.S. economy; (2) how the labor market for older workers might respond to these changes; and (3) the possible impacts from raising the retirement ages on the Disability Insurance (DI) and Supplemental Security Income (SSI) programs.

GAO noted that: (1) raising the retirement ages does appear to improve the social security program's long-term solvency and could increase the nation's economic output; (2) raising the ages at which individuals can draw benefits creates incentives for workers to remain in the labor force, thereby increasing revenues to the trust fund and decreasing the amount of benefits paid; (3) the majority of older workers, aged 62 to 67, do not appear to have health limitations that would prevent them from extending their careers, and thus their labor force participation should increase as the retirement ages are raised; (4) this greater labor force participation should raise the level of economic output as more people work longer; (5) however, the extent to which labor force participation increases depends on whether sufficient jobs are available for older workers; (6) employees may be willing and able to extend their careers, but it is unclear whether employers will be willing to retain or hire them because of negative perceptions about costs and productivity; (7) blue-collar workers may be disproportionately affected by these labor demand and supply factors because they are at greater risk for incurring certain health problems that could limit their ability to remain in the labor force; (8) for example, workers in poor health who otherwise might have kept working until they qualified for social security retirement benefits may opt to apply for DI, which could increase costs to this program; and (9) in addition, SSI could also experience increased participation and higher costs because some individuals will be dually eligible for DI and SSI.

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