Greenspan Urges Higher Retirement Age

WASHINGTON â€”  Federal Reserve Board Chairman Alan Greenspan said Thursday that the Social Security retirement age should again be raised and the annual cost-of-living adjustment trimmed to ensure future solvency of the retirement system.

“There will have to be a lot of changes made� to protect benefits for future retirees, Greenspan told a meeting of a special Senate Budget Committee task force on Social Security.

The age for full retirement benefits, now 65, is scheduled to begin climbing in stages in the next century, and will reach age 67 in 2027.

Greenspan did not suggest a specific new age target but said that it should reflect increased longevity and the fact that fewer Americans have “physically arduous work.�

Many experts have suggested 70 as a retirement age that would accurately reflect the changes in health and longevity that have occurred since Social Security was adopted by Congress in 1935. Sen. Judd Gregg (R-N.H.), chairman of the Senate Budget Committee task force, has offered a proposal to raise the retirement age to 70 in 2040.

“The Senate will show courage on Social Security when the time comes,� Gregg said after the hearing, noting that senators had voted to increase the Medicare eligibility age to 67 from 65 earlier this year when they adopted legislation to balance the federal budget. The idea was rejected by the House and opposed by the Clinton administration.

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The annual increase in Social Security benefits is linked to changes in the federal consumer price index, which overstates the “true cost of living,� Greenspan said.

A special commission this year recommended trimming the CPI by 1.1 percentage points, a step that would cut the value of future Social Security benefits by about 10%. This would extend the solvency of the retirement fund to 2052, far beyond the current financial crisis date of 2029, when it is projected that the fund will take in revenue to pay just 75% of promised benefits. But the proposal is strongly opposed by retiree groups.

Greenspan said that both a higher retirement age and a reduced cost-of-living adjustment would help Social Security deal with the aging of the huge baby-boom generation--Americans born from 1946 through 1964.

Congress should make changes soon so workers can make any necessary adjustments in their retirement planning, Greenspan suggested. “If we procrastinate too long, the adjustments could be truly wrenching,� he said.

The retirement promises will be hard to keep because of a generation of slow growth in national productivity, the Fed chairman warned. The country is not saving enough money to make the investments needed to produce enough goods and services to satisfy the needs of both workers and retirees after the baby boomers leave the work force.

Greenspan urged caution in considering suggestions for transferring some part of Social Security payroll taxes to individual, private accounts for workers. This approach would be a “more viable� system of handling retirement in the long run, he said.

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But, he warned, “it doesn’t create miracles . . . it doesn’t make something out of nothing.� The plan would work only if there is more national saving, he said.

To move toward a private system, the government could issue special certificates to workers to guarantee their future Social Security benefits, Greenspan suggested.

Currently, the system enjoys a surplus because payroll revenues--collected from 130 million workers and their employers--are greater than the benefits paid to 43 million retirees, spouses and survivors and disabled workers and their family members. The surplus helps reduce the overall federal budget deficit.

The surpluses are building now because the retiree population is growing slowly, reflecting the low birth rates of the Great Depression. The surplus will build until 2012, then begin to drop rapidly as the baby boomers start to draw retirement benefits, a General Accounting Office official told the hearing.

For a 75-year period, Social Security tax revenues will be 14% short of promised benefits, Barbara D. Bovbjerg, associate GAO director, testified.