Raising min. age solves sustainability
Biggs ’23 [Andrew G.; 2023; senior fellow at the American Enterprise Institute (AEI), where he studies Social Security reform, state and local government pensions, and public sector pay and benefits; was formerly the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA’s policy research efforts, B.A. from Queen’s University Belfast in Northern Ireland, master’s degrees from Cambridge University and the University of London, and a PhD from the London School of Economics; American Renewal, “Rethinking Social Security in the Face of Economic Threats,” https://www.americanrenewalbook.com/rethinking-social-security-in-the-face-of-economic-threats/]
The point of this review is that however politically sacrosanct US policymakers might consider Social Security’s tax and benefit formulas to be, there are other ways to attain retirement income security that are compatible with the United States’ basic political and economic traditions. Australia, Canada, New Zealand, and the United Kingdom each have fully functioning economies and democracies and provide well for their retirees while structuring their retirement systems differently from the US Social Security program. HOW SOCIAL SECURITY REFORM MIGHT LOOK I construct a Social Security reform plan built on the general philosophies of retirement programs in the four countries discussed above. The reform plan most closely resembles Australia’s retirement savings model while allowing policymakers to make several significant choices regarding the plan’s ultimate structure. In this reformed Social Security program, retirees would be guaranteed a government-provided benefit equal to 28 percent of the national average wage for single retirees and 41 percent of the average wage for couples, as is done in Australia. For 2022, given that the Social Security Administration projects the average wage will be $61,600, this would produce a benefit of $27,720 for single retirees and $33,880 for couples.14 In each case, these benefits are slightly over twice the federal poverty threshold.15 Using 2022 parameters, in which approximately 55 percent of retiree households are married, 45 percent are single, and there are 2.7 workers for each beneficiary, these benefits would cost approximately 8.8 percent of employee wages. On top of this cost would be expenditures for Social Security’s disability and survivor’s insurance benefits. Moreover, the 2022 cost terms would rise to about 11.4 percent of employee wages as the changing demographics gradually reduce the worker-to-beneficiary ratio to two-to-one.16 Policymakers must face two important questions. First, would this base benefit be means-tested? In Australia, the government-provided benefit is subject to a means test that eliminates benefits for roughly the richest quarter of the retiree population, reduces them for another quarter, and leaves them unchanged for approximately half of retirees. A similar means test in the United States would reduce the cost of the minimum benefit by approximately 38 percent, reducing the long-term cost from 11.1 percent of wages to about 7.1 percent.17 However, a means test acts as an effective tax on retirement savings. For that reason, Australia mandates that all employers offer a retirement plan and that all employees must participate, with contributions funded by employers alone at an amount equal to 12 percent of employee wages, up to a maximum annual wage of about USD 178,000. Together, mandatory personal retirement savings and a means-tested government benefit reduce the cost of Australia’s government retirement system.