Testimony Before House Ways and Means Subcommittee on Social Security — 2/26/98

Testimony Before House Ways and Means Subcommittee on Social Security by Commissioner Kenneth S. Apfel

February 26, 1998

Thank you for inviting me here today to discuss the Future of Social Security for this Generation and the Next. I am especially pleased that the topic of my first hearing as Commissioner of Social Security before this Subcommittee, and in the House of Representatives, is to discuss how we begin to strengthen Social Security for the 21st Century. I can think of no issue more important than preserving the program for future generations of Americans. Mr.Chairman, you and Ms. Kennelly have already contributed a great deal of vital information to this important discussion. I commend you for the work you have done by holding this series of hearings.

These hearings will help to make the national debate on the future of Social Security successful and informative. A full and honest discussion of the issues facing Social Security will allow Americans to understand and participate in the decisions that must be made in order to put Social Security on a sound financial footing. I strongly support the President’s call for all Americans to be involved in the national dialogue on Social Security in the coming year.

President Clinton's message on Social Security in the State of the Union was clear: Save Social Security first. Our fiscal house is now in order. For the first time in more than a generation, the Nation will enjoy a Federal budget surplus, not only in the coming year, but for many years to come. But the President has also stated that any budget surplus must be reserved pending Social Security reform. He has made it clear that he intends to work with Congress in a bipartisan effort to preserve and strengthen the program.

I am very pleased to be here today to discuss the ramifications of proposals to raise the Social Security retirement age. Today I will review with you the President’s process for reform, and in the spirit of that process, try to provide a full overview of the issues that must be addressed when we are asked to evaluate proposals to raise the retirement age.

President’s Process

President Clinton wants to use this year to raise the visibility of Social Security reform. He has challenged every American to attend a conference or forum on the issue—or to organize and host one if none are planned in the community. This national call to action must spread to every corner of the country.

The President and Vice President will be actively involved they will be attending several nonpartisan conferences convened jointly by the Concord Coalition and the AARP on Social Security reform. The first of these will take place on April 7, in Kansas City. They will also be participating in events organized by the Pew Charitable Trust, the first of which will take place March 21.

In December of this year, the President will host a bipartisan White House conference on Social Security as a culmination of the various conferences, forums and discussions held throughout the year. The purpose of the White House conference is to bring together the lessons learned from the national dialogue.

Following the White House conference in December, the President and his team will begin bipartisan negotiations with congressional leaders in early 1999. The President is firmly committed to strengthening Social Security for the 21st Century.

Preserving the Successes of the Program

As we begin this dialogue, we need to reflect on what features have led to Social Security's success. The dialogue will most certainly be about how to address the challenges facing Social Security in the future, but it will also be about how we preserve and protect the accomplishments of the program that has served this nation so well for over sixty years.

First of all, Social Security is dependable. Social Security has been there each and every month. Millions of Americans count on the arrival of their Social Security benefit. Today, more than 90 percent of the elderly in this country receive Social Security. Americans of all ages must be able to count on Social Security in the future. We have an obligation to provide a dependable source of income that Americans can use to plan their financial future with confidence.

In addition, Social Security is efficient. Less than one penny of every dollar collected is used for administering the Social Security program. It is a program that is portable and it is a program that provides benefits that are indexed to inflation.

Social Security is also the greatest anti-poverty program ever created. Without Social Security, nearly 50 percent of today's elderly would be living in poverty. Social Security doesn't make people rich, but it gives Americans rightly deserved financial independence. This financial protection, however, is not just for the elderly. Social security also protects working families through disability and survivors insurance.

Social Security ensures that all workers receive an equitable benefit through a progressive benefit formula. It is a program that is universal and fair. Proportionately larger benefits are provided to lower income workers who will need it most.

Finally, Social Security is a public trust. Social Security spreads the risk associated with disability, premature death, and old age among the entire working population and provides a guaranteed benefit that is adequate and fair.

During this discussion, we would do well to question whether changes to the program preserve and protect these important accomplishments: whether Social Security continues to be a benefit people can count on; whether the elderly, disabled, and survivors of workers are protected from financial hardship; whether the program is efficient; whether the program is universal and fair; and whether the program is maintained as a basic public trust. The dialogue about how we ensure the solvency of Social Security in the 21st century will need to include these critically important questions.

Need for Public Debate

As President Clinton has said, we must inform Americans about Social Security and the issues confronting it. The President’s proposal to conduct regional forums to raise public awareness of the problems facing Social Security acknowledges an important truth: the broad-based participation of the American public is critical to achieving a resolution of the long-term solvency issue. An accurate understanding of the facts is needed as the foundation for public discussion. We have been focusing our efforts on educating the public about Social Security programs to put them in the best possible position to be able to enter into public debate about options for the future of Social Security.

Before having discussions about reform proposals, it is important that Americans understand the Social Security program. What do I believe Americans should understand about our Social Security program? What is it about this program that reduced to its essentials makes it of such importance to the American electorate?

I want all Americans to understand what Social Security has meant to older Americans. The plight of older Americans used to be a disgrace. Now, Social Security provides them with a solid measure of economic security even if they outlive the actuarial tables, and their savings. It also provides many of them, and their children, the advantages that only living independently can offer.

I want all Americans to know that Social Security is more than a retirement program. I want younger people to know that not only will Social Security be there for them in the future, it is there for them NOW. How many people know that 1 out of every 3 Social Security beneficiaries is not a retiree but a disabled worker, or a member of his or her family, or a survivor of a worker who has died? They need to know that.

I want all Americans to know that Social Security was never intended to provide for all of a worker's retirement income needs. Pensions and personal savings have always been and should be part of a sound financial retirement plan.

I want all Americans to understand that the changing demographics of the country are the primary driver of the need for change. There is an unalterable dynamic at work: by 2030, there will be nearly twice as many older Americans as there are today, putting great strains on our retirement system.

I want all Americans to understand the economic facts about Social Security. Beginning in 2019, the trust funds will start declining and will be exhausted by 2029, if no changes are made to the current program. After the trust funds are exhausted, however, annual revenues will be able to pay three-quarters of current-law benefits.

Finally, I want all Americans to understand one important fact: as attractive as any option for change might be, there are tradeoffs that must be accepted if we choose it. These are complex issues, and the advantages and disadvantages of each will have to be discussed and examined.

SSA will play a vital role in helping to make understandable the elements that will lead us to long-range solvency. We have made strengthening the public’s understanding of the Social Security programs one of our five strategic goals in our recently published Agency Strategic Plan. Through a comprehensive education campaign, Americans will better understand the value of Social Security, while recognizing that its benefits supplement savings, investments, and private pensions in planning for a comfortable retirement.

Demographic Changes

As this Subcommittee is well aware, our population is changing. Americans are living longer and we are having fewer children. The number of older people—those over 65—is climbing. In fact, the population of the elderly, now 34.2 million strong—will more than double by the year 2030, to 69.4 million.

The number of workers collecting Social Security is increasing much faster than the number of workers contributing to Social Security. Today, there are 3.3 covered workers for each beneficiary, but by 2030, there will be only about 2 covered workers per beneficiary.

Now is the time—when the economy is strong, the budget is balanced—to begin to address the economic security for future generations of retirees. Now is the time—when the program is not in crisis--to face the long-range solvency problem and to begin to deal with it. It is important that we address this problem sooner rather than later so that changes can be made gradually and that there will be time for people to adjust their retirement plans.

The President’s approach--to use this year for national discussion and debate; to bring our ideas together in a series of forums culminating in a White House conference this coming December--provides an ideal process for measured, yet timely action.

Raising Retirement Age

And now to turn to the focus of this hearing: The issue of retirement age, whether it should be raised and how raising it would affect the millions of future retirees who will depend on Social Security, is a perfect example of the complex issues and the tough choices facing us as a Nation.

As you know, the normal retirement age is already scheduled to increase, beginning in the year 2000, as a result of the Social Security Amendments of 1983. Those amendments provided for a gradual increase in the age at which unreduced benefits are first paid from 65 to 67. The increase in the retirement age will be phased in over a 22-year period, with an 11-year hiatus at which the retirement age will remain at 66.

Some have proposed raising both the normal retirement age and the early retirement age beyond what it is under current law. The retirement age changes that are being proposed are intended to help address the long-range solvency problem facing Social Security. Some proposals would raise the full benefit retirement age past age 67 to 68 or even higher. In general, the higher the age is set for full benefits, the greater the effect on improving Social Security’s long-range financial condition. Asking future beneficiaries to work beyond age 67 is clearly imposing a sacrifice on these workers, and the American people will have to weigh this option against the other options for improving the financial condition of Social Security.

Another element in some retirement age proposals is the rate at which the increase in the full benefit retirement age is achieved. Some proposals would simply eliminate the present law "hiatus", so that full benefits would still be paid at age 67, but about 11 years sooner than scheduled under current law. Other proposals go beyond age 67 and do so very gradually, or relatively quickly. In general, the faster the higher age is reached, the greater the impact on reducing the Social Security long-range deficit, but the shorter the period that people would have to plan for the new retirement age.

Longevity and Health

Proponents of raising retirement age tell people that this change makes sense because Americans are living longer. When benefits were first paid in 1935, a 65-year old on average lived about 12.5 more years. Today, a 65-year old could expect to live about 17.5 more years and by 2070, life expectancy at age 65 is projected to be 20.5 years.

Because of the improvements in longevity, some experts argue that it is reasonable to continue to adjust the retirement age to encourage people to work longer. They say it is appropriate for the ratio of years-of-work to years-of-retirement to stay relatively constant from generation to generation. Had the normal retirement age been pegged to reflect increases in longevity when the 1983 Amendments were passed, the normal retirement age would be 65 and ten months today, and would reach 68 in 2054. Had the normal retirement age been pegged to reflect increases in longevity since the program’s inception, it would be over 70 today.

While it is quite clear that medical and technological breakthroughs have had the effect of extending life spans for many Americans, we do not know what proportion of those extra years are spent in good health and what portion reflects extra years of illness before death. I think we can all agree that, when we talk about raising the retirement age, there is a pivotal difference between longer life expectancy and longer healthy life expectancy.

Some research suggests that the health of older Americans has increased through the 1980s and into the 1990s. Arguments have been made that these gains are likely to continue, and can be expected to have the effect of reducing the period of dependence or ill health sometimes associated with old age, at the same time that life expectancy is increasing. On the other hand, more research is needed to clarify whether gains in longevity and health would mean most workers could extend their worklives. Critics of raising the normal retirement age have pointed out that this could have a disproportionately large impact on older workers in physically demanding jobs. Many analysts suggest that even if the normal retirement age is increased, it may be important to continue to allow early retirement at age 62, with the appropriate actuarial adjustment to benefits, as I will discuss in a moment. While it is expected that there will be fewer physically demanding jobs in the future, these jobs will not disappear. One study released in 1986 looked into the issue of whether people would be able to extend their work careers in the future because of the decline in the number of jobs that would require physical strength and endurance. The study concluded that the proportion of jobs in physically demanding employment will decline slightly from about 11 percent in 1982 to 7-9 percent in 2020.

Another consideration is the effect of raising the retirement age on employer behavior. How might firms’ employment and compensation policies change in response to an aging population that wants to work? Older workers often earn higher wages, often accrue more expensive pension rights that a firm must honor, and can increase an employer’s health insurance costs. On the other hand, in many respects the older worker is a prized commodity for potential employers. Knowledge, experience, and dependability are characteristics usually associated with the older worker.

Some have raised concerns about whether the labor market can accommodate a steady increase in the supply of older workers. Many experts believe that the U.S. labor market has always expanded to accommodate large, sustained increases in the supply of workers—witness the expansion of jobs for women in the decades after World War II, and the increased employment opportunities that met the baby boomers’ entry into the work force. However, as skeptics point out, the continued employment of older workers is not without problems. Skills can obsolesce and health often deteriorates. Firms often have financial incentives to substitute cheaper factors of production, including both younger workers and new equipment. We need to be aware of the potential problems and employment barriers some older workers might face if they attempt to remain in the labor market, as well as the potential contributions they can make.

Another issue is how employer-provided pensions relate to Social Security. If the full benefit retirement age is raised for Social Security, how will this impact on private pension protection? We need to fully examine and discuss the interaction between employer-provided pensions and Social Security.

Changes to EEA

Some have proposed to leave the "earliest eligibility age", or EEA, at age 62 while raising the age at which full benefits are paid. EEA benefits are actuarially reduced to take account of the longer period over which they will be paid. Maintaining EEA at age 62 and raising full retirement age has the effect of stretching the interval over which benefits need to be actuarially adjusted, and the result is that the adjustment in benefits at age 62 would need to be greater to be actuarially fair.

For any given couple, the decision to take a reduced benefit may be reasonable to that couple when they reach age 62. The availability of benefits at 62 may make it possible to travel, pursue hobbies, and, in general, to reap the rewards of retirement. The cost of choosing early retirement, however, is an actuarially reduced benefit throughout their retirement years. Today, almost three out of four workers retire before reaching age 65—electing reduced benefits—showing a strong preference of the American people to retire earlier, rather than later.

Relationship between Retirement and Disability Programs

Many have noted that issues of raising retirement age necessarily include issues of health and ability to work. Raising the retirement age would have repercussions for the disability program. As the normal retirement age increases, there is an increased incentive for workers eligible for early retirement benefits to apply for disability benefits because, unless they are similarly reduced, the disability benefits will be more attractive to older workers.

Opponents of raising retirement age emphasize that some of the savings from raising retirement age would be offset by increased costs under the disability program. Some proposals call for a reduction in disability benefits as a form of early retirement to avoid such an outcome.

Another approach that has been suggested by some would be to make changes in the disability benefits program to take account of those older workers who are unable to extend their work lives for health reasons. This approach was suggested by the Greenspan Commission before the 1983 legislation to gradually raise the retirement age was enacted. As a majority of the Greenspan Commission noted:

"¼ because some workers, particularly those in physically demanding employment may not benefit from improvements in mortality and be able to work longer, we assume that the disability benefits program will be improved prior to implementation of this recommendation to take account of the special problems of those between age 62 and the normal retirement age who are unable to extend their working careers for health reasons."

While SSA regulations already provide more relaxed eligibility requirements for workers who become disabled after age 55 when vocational factors are taken into account, the question is raised as to whether this is sufficient. There is no easy answer here.

Interactive Nature of Individual Elements

This complicated relationship between retirement and disability brings me to my final point. That is, we can evaluate proposals as to their individual merits, but the final solution to the long-range solvency problem will very likely involve many elements comprising a larger package. While we must understand the ramifications of each of those elements in isolation, we also must recognize that the elements will interact in the context of the entire package, and that those interactions also must be fully understood before any final conclusions can be drawn.


Raising the normal retirement age involves issues that need to be examined and discussed by all Americans. We must hear from the people, because Social Security is their program.

Every one of us, young and old, needs to understand that there are tough choices ahead of us. No option for resolving the long-term financing problems facing Social Security is perfect, and, as we have seen today in this discussion of raising retirement age, every option involves tough choices.

SSA will continue to take an active role in the process outlined by the President. We will continue to educate the public about Social Security; how it works, what is has achieved, and the nature of the long-range solvency problem. I look forward to working closely with members of this Committee in a bipartisan way to fashion solutions important to this Nation. I will be glad to answer any questions you may have.

Other Administration Statements

Save Social Security First (article by Gene Sperling)

Secretary Robert E. Rubin testimony on Social Security before the Senate Finance Committee

White House Conference on Social Security: Press Briefing by Gene Sperling

Deputy Secretary Lawrence H. Summers testimony on Social Security before the Senate Finance Committee

Clinton Has Done His Part (article by Gene Sperling)

Remarks by Treasury Deputy Secretary Lawrence H. Summers before the Senate Budget Committee Task Force on Social Security

Assistant Secretary David W. Wilcox testimony on Social Security before the Ways and Means Committee

New Directions in Retirement Income: Social Security, Pensions and Personal Savings

Testimony of Kenneth S. Apfel, Commissioner of Social Security Concerning the Challenges Facing the Social Security Administration

Testimony Before House Ways and Means Subcommittee on Social Security — 2/26/98

Testimony Before Senate Budget Committee Task Force on Social Security - 2/24/98

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