Sen. Chuck Hagel, R-Neb., has introduced a bill that would raise the retirement age for full Social Security benefits to 68, from 67.[@@]
The bill also would reduce benefits for workers who retire early, would add life expectancy to the calculations used to determine an individual’s base benefit, and allow room for a private account option.
Hagel filed the bill in an effort to break the political logjam over the long-term solvency of the system.
Hagel says the personal-account provision of his bill would offers Americans 44 and younger 2 options: Younger workers could invest 4% of their payroll taxes in a personal investment account modeled on the same accounts now offered to federal government employees (the remainder of their payroll tax contribution would continue to go into the traditional Social Security system); or younger workers could continue to invest their entire payroll tax in the traditional Social Security system.
If younger workers chose the personal account option, then those workers would be able to invest in the same 5 funds that collectively make up the current federal Thrift Savings Plan.
The bill would maintain the current early retirement age of 62. However, those who took early retirement would have their benefits adjusted. Currently, workers who retire early receive 70% of their full retirement benefits. under the bill proposed by Hagel, those benefits would drop to 63%.
Regarding the third component, Hagel says by factoring increased life expectancy to the calculations for the base Social Security benefit, the rate of increase in benefit payments would be slowed. “No other changes will be made to the annual consumer price indexing of benefit increases,” he says.
Currently, and individual’s base Social Security benefit is determined by their average income over 35 years and the wage index.
“In addition to making Social Security solvent, these adjustments can help us confront the challenges of increasing Medicare costs and shortages in the work force,” Hagel says. “It is important to protect the option of early retirement, but our laws need to encourage individuals to stay in the work force, not leave it. Medicare costs, Medicaid costs and labor shortages can be significantly reduced by keeping people healthy and productive and in the work force.”