Social Security Reform:

Implications of Raising the Retirement Age

HEHS-99-112: Published: Aug 27, 1999. Publicly Released: Aug 27, 1999.

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Cynthia Maher Fagnoni
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Pursuant to a congressional request, GAO provided information on the potential costs and benefits associated with higher retirement ages, focusing on: (1) Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds and the Supplemental Security Income (SSI) program; (2) the labor market for older workers; and (3) vulnerable population groups such as blue-collar workers and minorities.

GAO noted that: (1) raising the normal retirement age (NRA) or earliest eligibility age (EEA), or both, could have substantial net positive effects on the financial integrity of the OASDI Trust Funds by reducing the retirement benefits paid out and increasing the payroll taxes collected; (2) the extent of the improvement in solvency would depend on how high and how quickly the ages were raised, particularly the NRA, and how workers alter their retirement behavior in response to the change; (3) raising the retirement ages might also contribute to economic growth because workers would be likely to extend their careers; (4) however, raising the retirement ages could increase DI and SSI caseloads; (5) more older workers would be likely to apply for disability benefits because benefits for retired workers would fall relative to these programs' benefits for the disabled, and a greater number of employed older workers would lead to a greater number of DI participants; (6) according to GAO's estimates, however, the increases in DI participation and the associated increases in DI payments should not offset a substantial amount of the cost savings that would accrue to the OASI portion of the Social Security Trust Funds; (7) raising the retirement ages would likely increase the number of older workers in the labor force, as more workers would be employed for longer periods of time; (8) the magnitude of this increase would depend on whether the EEA, the NRA, or both were raised; (9) another key factor is the size of the increase in the EEA or the NRA and the transition period allowed for the changes to be implemented; (10) changes in the retirement ages could have a potentially substantial effect on the decisions of older workers to remain in the labor force if they were implemented quickly; (11) the total population of persons aged 55 to 64 is expected to grow, creating the potential for a significant increase in the number of persons in this age group in the labor force; (12) increasing the number of older workers in the labor force, however, could also create the potential for additional unemployment; (13) although the health of the older population has generally improved, some groups of older workers--those who are less healthy and those in blue-collar occupations--may face significant barriers to continued employment; (14) these obstacles could be the most severe for African American and Hispanic workers; (15) individual proposals such as raising the retirement ages are often part of more comprehensive proposals to reform the Social Security system; and (16) in this context, an understanding of the cumulative effects of an entire reform proposal is essential to prevent any adverse effects from falling disproportionately on a single vulnerable population.

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