I went to a restaurant recently where a server, a man who appeared to be in his late 60s, had obvious hearing problems despite wearing a hearing aid. We had to repeat our food order and he forgot my wine (or perhaps never heard me order it). It made me think about the pressure that older workers are under to remain in the workplace as a result of the Social Security Administration’s discriminatory benefits formula.
The formula is rigged to benefit those who stay in the workplace the longest. If workers retire at age 62 – the earliest possible age – they suffer a 33 percent loss in their monthly benefit for the rest of their lives compared to workers who wait until age 66. If workers can hold out and retire at age 70 – the oldest retirement age in the formula – they will receive a benefit that is 75 percent higher than if they had retired at age 62.
The problem is that many, if not most, older workers have little real choice about whether they will remain in the workforce.
Voya Financial, Inc. recently released findings from a poll of 1,002 recent retirees that found 60 percent had to stop working unexpectedly. Thirty-three percent said they left their jobs involuntarily. Of this group, 16 percent had to retire because of health challenges, 11 percent lost their jobs, three percent had to stop working because they had to care for a spouse or dependent, and an additional three percent retired involuntarily because of their age.
Once an older worker is jobless, the chance that he or she will find new employment is almost nil due to epidemic, blatant and unaddressed age discrimination in hiring. These jobless older workers are forced to spend down their savings and work in low-paid part-time and temp jobs until they age into a financially ill-advised early “retirement.” The AARP reported in February that older job seekers represented 24 percent of the unemployed in March 2013 but 31 percent of the long-term unemployed. The AARP cited one study showing that only about one in nine long-term unemployed workers had steady full-time jobs 12 months later. Older non-Hispanic blacks had the highest rate of long-term unemployment (57 percent), followed by Hispanics (53 percent) and whites (47 percent). How ironic that these Americans are subjected to discrimination a second time – by the Social Security Administration!
The Social Security benefits formula penalizes the poor.
One group that is particularly disadvantaged by the Social Security formula is blue-collar workers. How many roofers, construction workers or restaurant servers have the stamina at age 65 to work a nine-hour day in job that demands heavy physical labor? In reality, employers don’t hire older workers for jobs that require heavy physical labor if younger workers are available. Older blue-collar workers are forced out of the workplace both by their inability to find work and their inability to work.
Ultimately, the Social Security formula rewards two groups of workers; those who, for whatever reason, can remain in their jobs until they reach the age of 70 (i.e.,white collar workers and professionals) and workers who cannot stay in their job but have the financial wherewithal to subsidize their lifestyle without having to resort to Social Security until they reach the optimum age of 70 (i.e., the rich).
Why do the wealthiest workers receive a Social Security benefit that is a whopping 75 percent higher than that received by workers who are essentially forced to retire at age 62.
Chart by Social Security Administration
The SS Formula is Based on a False Premise
The Social Security Administration claims that it doesn’t matter when you retire. “If you live to the average life expectancy for someone your age, you’ll receive about the same amount in lifetime benefits. It doesn’t matter if you choose to start receiving benefits at age 62, full retirement age, age 70, or any age between.” But that’s a big “if.” Average life expectancy is not uniform and research shows that wealth is predictive of a longer life-span.
There are winners and losers under the Social Security formula.
Poor people have a shorter average life span than rich people because they suffer from a higher rates of many diseases such as diabetes, heart disease, depression, and disability. According to a 2011 U.S. Senate Committee report, people in the highest income group can expect to live, on average, at least 6.5 years longer than those in the lowest income group. Even Americans who are considered to be “middle-class” are less healthy than Americans with the highest incomes.
How long you live in the United States also depends upon where you live. According to testimony at a 2013 Senate Subcommittee hearing, there is a 12-year gap in life expectancy between women in wealthy Marin County, Calif., where the average person lives to be 85 years old, compared to women in economically disadvantaged Perry County, Ky., with an average life expectancy of 73 years. Life expectancy for men in the wealthy Washington, D.C. suburbs is 82 years compared to 64 for men in McDowell County, W. Va., just 350 miles away.
Educated people live longer than uneducated people. Adult men and women who have graduated from college can expect to live at least 5 years longer than people who have not finished high school.
Research shows that African-Americans have a lower average life expectancy than whites – in other words, they tend to die sooner than whites. The Centers for Disease Control reports that the life expectancy for in 2010 for black males was 71.8 years and for black females it was 78 years This compares to 76.5 years for white males and 81.3 for white females.
Even the Social Security Administration admits that women live longer than men.
The bottom line is that the Social Security Administration’s benefit formula should be reexamined for the reasons stated above and for another reason that is perhaps even more compelling. Social Security has a “wage base limit”” – it doesn’t tax earnings above $118,500. Why? There is no wage base limit for Medicare tax. All covered wages are subject to Medicare tax. And why is the wage base limit set so low for Social Security?
It seems unfair to impose a Social Security tax on 100% of the earnings of poor and middle class workers but not the wealthy.
It is time to re-examine the Social Security formula.
The purpose of Social Security is supposed to be to help “aged needy individuals,” not to provide a windfall for Americans who need help the least. The current formula rewards the rich and penalizes the poor.
I left my server a 20 percent tip, even though he screwed up my order and forgot my wine. I suspect his time in the workplace is running out and he will need every cent in the years ahead. It makes little sense to reward older Americans who have the financial resources to forestall retirement until they reach age 70 and to penalize those who are forced out of the workplace by ill-health and age discrimination.