Center for Economic and Policy Research (emphasis mine):

February 17, 2011

The Honorable Mark Warner
459A Russell Senate Office Building
Washington, DC 20510

Dear Senator Warner:

During an interview on NPR's Morning Edition today you stated that the retirement age for Social Security was set at 65 by President Roosevelt when the average life expectancy was 64 and that now we are living much longer. The implication of this comment was that the retirement age must be raised to better reflect life expectancy.

As can be seen from the Social Security Trustees’ Report, the normal retirement age for Social Security has already been raised to 66 and is already scheduled to rise to 67. Raising the retirement age further would amount to a cut in benefits with each successive increase in the retirement age. If the normal age of retirement is phased in to reach 70 by 2036, it would result in a 4.0 percent reduction in benefits for workers between the ages of 50-54 in 2007 and a 10 percent reduction for workers between the ages of 40-44 in 2007.

Another point worth considering is that if the normal retirement age rose further, many workers would find it increasingly difficult to work until they are eligible for Social Security benefits. Forty five percent of workers over the age of 58 work in jobs that are physically demanding or have difficult work conditions. It is hard to imagine construction workers, firefighters, or nurses working well into their late 60’s. Many would end up taking early retirement with a considerable reduction in benefits compared to currently scheduled levels.

The Trustees’ Report projects that Social Security will remain fully solvent through 2037 and will be able to pay almost 80 percent of benefits for many decades past this date. It is also worth noting that the necessary increases in funding to maintain full solvency are relatively small compared to items like the rise in defense spending over the last decade, so there certainly are not major economic obstacles to maintaining full funding.

I hope that you will have the time to review the program’s finances more carefully so that when you speak on it in the future you are better informed. I would be happy to assist you in providing additional background if it would be helpful.

Regards,
Dean Baker
Co-Director, Center for Economic and Policy Research
Cc: www.cepr.net

Transcript below the fold.

WALLACE: All right. Well, let me bring in Senator Warner.

For you, as a Democrat -- having a skin in the game means that you have to take the politically unpalatable choice of cutting entitlements. As a Democrat, are you willing to scale back on benefits for Social Security and Medicare and Medicaid?

WARNER: Well, you see? We have to do this because otherwise, if we focus the discussion as we have so far on the back and forth in Congress, all you're cutting is 12 percent of the federal budget, the domestic discretionary spending. And you are seeing actually good programs perhaps being eliminated because you focus the discussion only in that area.

You got to put everything out. That means Saxby and I are probably going to take some arrows -- he on the Republican side and he, because we're taking, willing to take on reforming some of these entitlement issues. But every day that we punt, every day that we don't act, we add $4 billion to our national debt. At some point, we're going to have to pay that back.

So, why not now go ahead and put a plan in place -- we didn't get in the situation overnight. We're not going to dig out in a single year. But if we put a plan in place, I think the markets will respond and I actually think the economy will be better. But that's going to require a little give from both sides.

WALLACE: But the Democratic leader in the Senate, Harry Reid, said this recently: "Social Security has contributed not a single penny to the deficit. So, we can talk about entitlements as long as you eliminate social security from the discussion."

First of all, isn't that wrong? Social Security is already paying out more than it takes in and that's just going to get worse as the baby boomers retire. Isn't that as a fact wrong that it doesn't contribute the deficit? And secondly, can Social Security really be off the table?

WARNER: Well, Chris, until recently, Social Security has actually been running major surpluses. In effect, we've been borrowing from Social Security to finance the government. Now that's clicked over on an annual basis -- as you said, we're paying out more than we're taking in.

What the debt -- what our proposal puts out is not taking Social Security proceeds any longer and paying off the deficit. It's saying let's make sure Social Security is solvent for the next 75 years. If we don't do it - -

WALLACE: But you're also talking about, first, is raising retirement age.

WARNER: Well, my sense is, you know, remember Social Security was put in place back in the '30s. They set 65 as the period -- the start, because life expectancy was 64. Now, Americans, thank goodness, are living towards closer to age 80.

And the idea that we're going to slowly raise the retirement age a couple of years over the next 40 years -- nobody, you, me, Saxby, we're not going to be effected at all. Folks under 35 might see a slight bump in their age increase, but frankly, a lot of folks under 35 don't even think there's even going to be Social Security if we don't do something in this.