Research Grant Summary

Several factors must be evaluated to determine the savings to the Social Security Trust Fund of increasing the normal retirement age above 65. What was examined was the cost savings that could be attributed to raising the normal retirement age from 6 to 120 months above age 65 after adjusting for possible increases in disability incidence with age and for the higher mortality of disabled persons between ages 65 and 75. Other sets of potentially significant factors, not explicitly examined above, are labor-market conditions (that is, how many and what types of jobs are available for older workers), and psychological factor (that is, the motivation to continue gainful employment). The calculations show that, other things being equal, increases in disability prevalence between ages 65 and 75 will not substantially reduce the cost savings attributable to increasing the normal retirement age up to age 75. Thus, assuming that the U.S. labor market can absorb large numbers of older workers, and that older workers will be motivated to continue working, the savings generated by increases in normal retirement ages could be quite large. Indeed, with an increase of the normal retirement age of 70 or 72, it might be possible to provide much of the cost savings needed to meet the increased demands that will be put on the Social Security Trust Fund when the greatest number of the World War II baby boom cohorts reach age 65 in 32 years, in 2028. This savings may be possible because, in addition to the cost savings to the SSA pension program, the proportion of the population that continues to work until age 70 (or 72) will also contribute to the payroll tax. Their actual contribution will depend upon the numbers of older workers and their average wage rates. Nonetheless, the savings in pension costs (even adjusting for potential increases in disability with age), and the potential increases in payroll tax revenues, should significantly contribute to bringing the trust funds into actuarial balance.