Why Age 65? How About 85?

Why is age 65 the retirement age?

Legend has it that when Otto von Bismarck, Chancellor of Germany in the 1880s, proposed the world’s first retirement insurance program, he asked his advisors, “How long do people usually live?” When told the average life span was 45 or 50 years, he said, “Then, let’s give a pension to everyone at age 65.”

Myths rarely line up with reality. Germany set that first retirement age at 70, certainly no budget buster.

By 1935, when Congress was considering Social Security, Germany had lowered its retirement age to 65. Many states and some large US companies had pension plans with retirement ages ranging from 65 to 70. By then, the average life expectancy was 60 years.

Congress adopted age 65, apparently anticipating that it would not cost much, especially since most people wouldn’t live long enough to receive it.

Thirty years later, Congress passed Medicare. By then, average life expectancy was 70 years.

To offset the cost of these programs, Congress created taxes to be shared equally by employers and employees. Social Security taxes were expected to cover the cost. In 1965, medical expenses didn’t consume 17 percent of the economy as it does today. So, when Congress enacted the Medicare tax, it only covered approximately 14 percent of costs. No tax was enacted to cover Medicaid costs.

After Medicare and Medicaid were passed, federal government spending on health care jumped to 5 percent of total spending.

Today, the average citizen lives to be almost 80. Medicare, Medicaid and other federal health care programs consume more than 25 percent of all federal spending and with projected increases of 10 percent per year, health care will consume 30 percent of the federal budget within five years.

The average cost to insure a family now exceeds $15,000 per year, more than a minimum wage worker earns in a year.

Yes, some of that increase is related to the new health care law. It’s 1 percent of that increase, mostly from allowing children to remain on their parents’ policies until they are 26 years old. The other 9 percent is the inexorable, uncontrollable creep of costs.

The harsh reality is that taxes dedicated to covering health care cover less than 10 percent of the federal government’s costs.

As a nation, we have to ask ourselves: How much longer can we bring in a dime and spend a dollar?
With the average citizen living almost 20 years longer than in 1935 and with 80 million baby boomers over or approaching age 65, ignoring the cost of social security and health care is like following Thelma and Louise – right over a cliff.

The political irony is that both political parties want the same thing: something for nothing. Republicans refuse to consider any new revenue source. Democrats draw the line at changing Social Security, Medicare and Medicaid.

The need for compromise is painfully obvious, but the political cost is equally obvious. Compromise means facing the wrath of voters.

Are there any solutions? No easy ones.

Regulate profits in the medical sector the way utility company profits are regulated by the government. (That’s going to make some enemies.)

Universal health care contains costs in other countries. The U.S. spends double on health care what other countries spend, yet US life expectancy ranks about 40th in the world. Apparently, American citizens prefer to die sooner as long as the government stays out of health care.

Or, take a page from Bismarck’s playbook: Provide benefits for those who outlive the average person by, say, five years. That’s what Congress did when it started Social Security. In other words, with life expectancy approaching 80, begin providing benefits at age 85.

As ridiculous as that sounds, consider that It would be consistent with Social Security’s “original intent.” It would balance the budget. It might even lower life expectancy. And that would further reduce budget pressures.

Is it any more ridiculous than refusing to face the reality that retirement and health benefits for 80 million baby boomers can be provided without a revenue source, without any government regulation, and without a meaningful change in the retirement age?

And, most importantly, without compromise?