Sign in Subscribe
Credit ratings

America's Debt Problem Runs Deeper Than Tax Reform

Strategic Insights

— 1 min read

A growing consensus among credit rating agencies signals that addressing America's debt problem requires confronting another harsh reality: Americans retire too soon. The country's unfunded entitlements, particularly Social Security and Medicare, pose a significant long-term threat, underestimated in 10-year budget projections. A key factor contributing to this problem is the early retirement age, which has become a norm in many states, with over one-third of Americans and nearly 40% of women retiring before 65.

Key Takeaways:

  • Americans retire too soon, with over one-third retiring before 65 and nearly 40% of women retiring early.
  • The "normal retirement age" for Social Security, 62, remains unchanged despite the reform in the 1980s increasing it to 67 for those born after 1960.
  • The average retirement age has started to creep up due to financial incentives and longer lifespans, but most Americans do not take advantage of later retirement.
  • Age discrimination and physically demanding jobs contribute to early retirement, but these do not justify providing the option to everyone.
  • Social Security's disability program can better serve those who need to retire early, and raising the early retirement age to 65 over the next decade could make the program more sustainable.
  • Raising the early retirement age, indexed to life expectancy, could reduce the long-term shortfall by 14-50%.
  • A 2.5% payroll tax increase on earnings above $250,000 could be more realistic and equitable than promising higher taxes on the wealthy or running bigger deficits.

Statistics:

  • 34% of Americans retire before 65 (Source: Social Security Administration).
  • 39% of women retire before 65 (Source: Social Security Administration).
  • The average retirement age has increased due to financial incentives and longer lifespans (Source: Social Security Administration).
  • Raising the early retirement age could reduce the long-term shortfall by 14-50% if indexed to life expectancy (Source: Social Security Administration).
  • A 2.5% payroll tax increase on earnings above $250,000 could generate significant revenue to address the debt problem (Source: National Association of Manufacturers).

Sources:

  • Social Security Administration
  • National Association of Manufacturers
  • Social Security Administration
  • Moody's Investors Service

Read more