January 16th, 2012|
Since the average life expectancy is higher than it was 40 years ago, many politicians and economists have publicly opined that raising the Early Eligibility Age (EEA) for benefits is good economics, reports Bruce Krasting of Business Insider.
But Krasting thinks that all of these deep thinkers are wrong.
How is it possible that all of the folks pushing for an increase in the EEA could be wrong on this issue? Intuitively it makes sense. Why doesn’t it work?
Social Security discounts the amount payable if early retirement is opted for. It is calculated so that Social Security is “expense neutral.”
The Social Security Administration uses a simple formula that immunizes Social Security from the cost of those seeking payments prior to their Full Retirement Age (FRA). The reductions are based on the month of claiming: A benefit is reduced by 5/9 of one percent for each of the first 36 months before the FRA.
Benefits payable at age 62 = $1,000 per month
Average Life / (years of benefits)= 78 / (16 years)
Total life time benefits = $192,000
Benefits payable at age 64 = $1,142
Average Life / (years of benefits) = 78 / (14 years)
Total life time benefits = $191,856
Krasting hopes that this proves that there is no economic consequence to Social Security from raising the EEA.