Social Security currently runs a healthy surplus, and despite conventional wisdom, the shortfall in Social Security projected to develop over the next 75 years is not primarily driven by an increase in life expectancy. The Economic Policy Institute (EPI) found that the projected shortfall is more the result of earnings inequality and weak wage growth, which account for more than half of the projected shortfall. Morrissey states that the increase in the normal retirement age from 65 to 67 that is currently underway already offsets gains in life expectancy for workers born before 1960, and that longevity gains for younger generations account for only a fifth of the projected Social Security shortfall.
The EPI briefing states that a higher retirement age would most negatively impact low-income workers, who have seen only modest gains in life expectancy and who can least afford a reduction in benefits. The briefing goes on to suggest that the best first step to restoring long-term solvency to Social Security is to raise or eliminate the taxable earnings cap, which is currently set at $106,800.
[The entire paper published on January 26, 2011 can be accessed at the Economic Policy Institute's website.]
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