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Anticipating Baby Boomers Generation Retirees: The Positive Economic Impact of Increasing Full Retirement Age in America (Term Paper Sample)

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a thesis proposal discussing The Positive Economic Impact of Increasing Full Retirement Age in America

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Anticipating Baby Boomers Generation Retirees: The Positive Economic Impact of Increasing Full Retirement Age in America
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Anticipating Baby Boomers Generation Retirees: The Positive Economic Impact of Increasing Full Retirement Age in America
Introduction and Background Information
In 1889, Germany’s Chancellor Otto Bismarck designed the world’s first social insurance program to take care of the old and disabled. The idea for a social insurance program had been mooted earlier in 1881 by Emperor William I on Bismarck’s behalf. In a letter addressed to the German Parliament, the Emperor stated that ….. “Those who are disabled from work by age and invalidity have a well-grounded claim to care from the state” (U.S. Social Security Administration, 2013). Legend has it that Germany’s social security program initially adopted 65 years as the official retirement age because it was Bismarck’s age at the time. However, other sources show that the original standard age was 70 years, but was lowered to 65 in 1916; 27 years after the program came into effect, and 18 years after Bismarck’s death. By the time the program was established in America in 1935, Germany was using 65 as the normal retirement age. However, the Germany precedent did not influence America’s choice of 65 following the proposal of the Committee on Economic Security (CES). Rather, the CES was informed by pragmatic observations on the prevailing trends in the few private pension schemes at the time, whereby 65 appeared to be the norm. Moreover, the newly created Railroad Retirement Scheme used age 65 for its members. Findings from subsequent studies showed that 65 was not only a more reasonable age than 70, but was also manageable and sustainable under current payroll taxation revenues. The 1983 amendment increased the age to 67 years, in which Congress cited significant improvements in health services for older people and increasing life expectancies (U.S. Social Security Administration, 2013).
It is strange, however, that at a time when governments all over the world are concerned about increasing unemployment levels, there are voices proposing to retain those already employed beyond their normal retirement age. New proposals have been made to extend the normal retirement age beyond 67 years. In January 2013, a Business Roundtable of Chief Executives suggested pushing the full retirement age to 70 years for both Medicare and Social Security. Gary Loveman, chairman of the Business Roundtable’s retirement and health committee, stated that “America can preserve the health and retirement safety net and rein in long-term spending growth by modernizing Medicare and Social Security in a way that addresses America's new fiscal and demographic realities” (Associated Press, 2013).
Problem Statement
America’s new “fiscal and demographic realities” that the Business Roundtable committee is concerned about is the increasing number of retirees at a time of economic recession, which has pushed government spending to its limits. The committee’s advocating to increase the retirement age to 70 years is not coincidental. Under the 1983 Congress Act that increased the retirement age to 67 (Grassley & Breaux, 1999), the first cohort of the baby boomers generation came into full retirement in 2013. Consequently, the number of retirees depending on Social Security is set to increase significantly over the next few years. In addition, the average life expectancy has increased over the years from 73 in 1983 to over 78 in 2010 (World Bank, 2013). And here lies the problem. More retirees will be claiming benefits for a longer time than it was the case three decade ago. If Congress anticipated this development when it passed the retirement act of 1983, it clearly did not comprehend its full magnitude. Not surprisingly, a 2012 Congress report stated that the long-cherished tradition of retiring at 65 is “an increasingly obsolete’ concept that should be reconsidered in light of rising longevity and better health among the elderly” (Cohen, 2012). The implications of this development do not favor the financial condition of the Social Security Trust Fund. The program finds itself in a financially difficult situation since it has to pay out benefits to a larger population than before. On the other hand, revenue generation is set to suffer following the economic recession that saw many employers retrench workers en mass. Under these circumstances, the Social Security Trust Fund’s financial resources may not be sufficient enough to sustain the program in the long run. What is the way out of this looming financial crisis?
The proposed study will seek to find solutions to this problem by researching on the impact that increasing the full retirement age to 70 will have on the Social Security program in terms of financial expenditure. Considering that this is the first time that the baby boomer generation is coming into full retirement, the proposed study will provide valuable literature on how to deal with an unmanageable number of Social Security beneficiaries.
Research Questions
The proposed study’s approach is informed by the human capital theory. The aim of the study is to explore ways in which the Social Security program can avert a possible financial crisis by translating a potential economic burden into a productive asset. The research will be focused on finding solutions to the economic burden that a large number of retirees will place on the Social Security Trust Fund. The variables to be studied are the relationship between a higher retirement age and the financial stability and long term sustainability of social security programs. The third variable will be the impact of lower retirement ages on the financial stability and long term sustainability of the social security programs. Therefore:
I am studying the financial impact of a large number of social security beneficiaries on America’s Social Security Trust Fund
I chose this topic because I want to know how government policies on eligibility for retirement benefits reflect prevailing economic conditions
I will carry out research on early and normal retirement trends in order to understand the relationship between increasing the full retirement age and financial stability and long term sustainability of the Social Security program.
Literature review
In “Collect your money now or later? Timing your social benefits,” Siegel Bernard explored the benefits for delaying to take social security retirement benefits for those who were in a position to forgo the benefits. He wrote that unless a household is constrained by circumstances such as job loss, or inability to work, such a household should restrain itself from taking up social security early.
In Siegel Bernard’s opinion, a person stands to lose a lot per month by taking up the benefits early. A person is eligible to take up the benefits from age 62 to age 70. The retirement age is 66. To Siegel a person can lose up to 250 dollars per month by taking the benefits at age 62 or gain up to 320 dollars for delaying until one is age 70. In his view forgoing social security is like investing in an annuity that pays higher and is guaranteed.
A paper titled ‘when to claim social security benefits’ by Dr. Peter Rabin’s, describes the decision on when to take social security as very important. It points out that a person has to establish his or her ability to retire early and start taking benefits at age 62 or how delaying retirement to age 70 in order to receive a bigger proportion will affect the person (Siegel, 2009).
Dr. Rabins concurs with Siegel that taking the benefits early reduce the benefits by up to 250 dollars for a person expected to take 1000 dollars at the retirement age 66. A delay to age 70 will on the other hand increase the benefits by up to 320 dollars for the same person. The information is obtained by use of a social security benefits calculator (Rabins, 2010).
A report by Grassley to the chairman and the ranking minority member of the special committee on aging in the US senate analyses the life expectancy of the American people. It analyses the change in the life expectancy and the effects the increase have on social security retirement fund. It also report on the benefits that are associated with the higher retirement age (Grassley, 1999).
It analyzed a data set representative of the nation on health and retirement that was compiled by social research institute of the university of Michigan and data from SSA. They also used a ‘policy simulation model’ to determine the effects of increase in retirement age to the trust fund solvency.
The report stated that increasing the retirement age had disproportionate on effects on some vulnerable populations. Additionally, it stated the advantages of increasing the retirement had a better balanced effect on distribution. Additionally, the report suggested that less healthy people and blue collar workers were not likely to continue working even if given the change.
DiCecio et al (2008) studied the composition of the American workforce in their paper titled ‘changing trends in the labor force: a survey’. They further analyzed how the aging population contributes such changes in the workforce. Further, they analyze various the studies in this field. In an analysis of the trends in the labor market using statists that dated back to1948, Ricardo et al concluded that the united labor force has undergone very dramatic changes (DiCecio, 2008).
They conclude that the baby- boom generation, those born in the late 1950’s are nearing the retirement age and therefore are expected to start exacting pressure on social securi...
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