News, Analysis, and Research for the Retirement Planning Industry

GAO Report Misses Mark: Extending The EEA A Great Idea

In Social Security on 22 November 2010 at 11:08 pm

Today’s “What We’re Reading” section of the New York Times blog, Economix, reports that if we “[r]aise the retirement age, more will become disabled, Merrill Goozner writes.”

In his post on The Fiscal Times, Mr. Goozner summarizes the findings of a new report from the Governement Accountability Office prepared for Senator Herb Kohl (D-WI)*(see snarky comment at the end) The report looked at raising the early retirement age as one measure to help close the Social Security funding gap.  (See my recent post on the topic.)

Early in his post, Mr. Goozner quotes the report findings that “[r]aising the retirement ages would likely increase the number of workers applying for and receiving disability insurance benefits”, which Mr. Goozner correctly note also come out of Social Security.  He concludes his post citing the report’s conclusion; that “raising the early retirement age would have a negative impact on (Social Security) solvency because disability costs would rise an expected total lifetime retirement benefits would not change.”  Since Mr. Goozner does not offer much in the way of analysis of the report’s findings, one cannot say for certain where he stands on raising the EEA, but based on the quotes he uses to bookend his article, a reader might think he accepted the reports findings and was against raising the EEA.

Before I address the report itself, I want to address the reporting on the report.

I understand it is “just” their blog page, but NYT reporting that “Merrill Goozner writes” that if we “raise the retirement age, more will become disabled”, strikes me as lazy.   The headline makes it sound as though Mr. Goozner determined this to be the case.   In fact, Mr. Goozner offered virtually no analysis.  His article essentially consisted of some quotes and statistics from the report.  My complaint might sound persnickety, but when a major news organization make these kind of “pronouncements”, it gets picked up other news outlets until everyone comes to understand that “if we raise the early retirement age, more people will become disabled and therefore, the idea is not a good one.”  Even if Mr. Goozner shares this sentiment, simply quoting the report does not make the report correct.  If a I wrote a report that made the cases for my exceptional dancing abilities and the New York Times posted a link to a blog post that quoted my report, the general perception about this Jay DeVivo fellow is that he is one heck of dancer; a perception that would not be shared by people who attended my wedding.

As to the report itself…

Slide 26 (page 32) is the crux of the GAO argument:

  • “As of December 2008, about 2.8 million 62-64 year olds were receiving Social Security retirement benefits.”
  • “If a rise in the EEA delayed eligibility for retirement benefits until age 65, 62-64 year olds would have to wait for retirement benefits, with some being unable to work longer.
  • “Among these, many would not qualify for DI benefits, making them more financially vulnerable.”

In reaching the conclusion that the increase in DI claims would more than offset the benefit to delaying benefits, the study’s authors had to make assumptions about the behaviors and circumstances of these 2.8 million people.  One apparent assumption is that a large proportion is physically unable to work longer.  Two studies contradict this assumption.  The first is a 1996 paper that looked at the characteristics of those who took Social Security early versus those that postponed.  One finding was that respondents who reported their health as “poor” were about as likely to postpone taking benefits as they were to postpone taking benefits (1% more men in poor health took early benefits instead of postponing, 1% more women went the opposite way).  Further, a CBO study in 1999 found that only 15% of respondents who claimed benefits prior to their FRA where either in poor health OR lost their jobs.

The 3rd bullet point on the slide is interesting.  If people are would not qualify for DI benefits, well then they are not disabled.  That is a good thing.   The concerns expressed in the bullet are directed toward the decreasing percentage of workers doing physically demanding work.   It is a common concern as evidenced by a comment on Mr. Goozner’s blog:   “If you work in an air conditioned office, then maybe it is ok to work a little longer. But what if you are a construction worker, digging in 100 plus temperatures, your body may have a hard time keeping up and surviving.”

This gets to a second major, and I believe faulty assumption; that people must either continue working in their current jobs or exit the workforce.

If the commenter’s construction worker can’t stay on the job site at age 65 (admittedly difficult), that doesn’t mean he has to hang up his work boots for good.  Why can’t he get a job where he can leverage his expertise in less physically demanding setting?  Companies like Home Depot would love to have someone with a lifetime of practical experience that can be passed on to their customers.   Whatever the role might be, it is a societal loss to have productive people sitting on the sidelines.

Lastly, by using current DI usage as a baseline, the report assumes the current DI system is not gamed.   Last week Andrew Biggs, had a great piece in the New York Times on the problems with DI and steps to improve the system.

While I do not doubt that the GAO can come up with a scenario that demonstrates extending the EEA is a net negative, I think the assumptions of which that scenario is comprised are simplistic and run counter to experience, ignore the changing work environment, are unrealistic with regards to the usage of current programs, and sell short the flexibility and work ethic of the American worker.

*First, the words “Government Accountability Office” always bring a smile to lips, though a frown is the more appropriate expression.  Second, Senator Kohl is not necessarily the biggest “accountability” booster:  In 2007 he voted against a deficit-reduction meaure that would have evaluated the effectiveness of government programs and eliminated those deemed ineffective.  Kind of like “accountability.”


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