Our looming debt crisis is mostly a looming entitlement crisis. And our looming entitlement crisis is a looming retirement crisis. But the worry is not merely that 80 million baby boomers will phase into retirement over the next ten or fifteen years. The worry is also that Americans today spend twice as many years in retirement than in 1970. Click this picture:
The Economist. Click on graphic to enlarge.
So we are living longer. That's a good thing, right? Of course it is, but longer post-retirement lives means much higher withdrawals from Medicare and Social Security and potentially Medicaid -- if, for example, our elderly wind up in nursing homes. Governments around the world are looking for ways to delay retirement, and naturally they're facing enormous backlash because the about-to-retire voting bloc is (1) very politically active, (2) flush with disposable income that they can spend on political contributions, and (3) about to retire, and counting on government pensions. But we've raised the retirement age before in the early 1980s, and today I agree with Greg Mankiw when he says: "I hope the president's fiscal commission makes raising the age of eligibility for these programs one of its main recommendations."
This comes, of course, with the caveat that moving back the date when Americans receive full entitlements is not a sufficient response to our fiscal challenge. The federal government is projected to add another $9-11 trillion in debt over the next decade. Adjusting the full retirement age is like giving cane to a man with a shattered leg: necessary, but hardly sufficient. A fuller solution might also involve removing tax benefits, adding new taxes, and cutting both discretionary and non-discretionary spending. But adjusting the retirement age is a smart first step, because it closely reflects the underlying reality of growing longevity. Americans' life expectancy isn't carved in stone; it is steadily growing. The same should be said of our retirement age for Social Security and Medicare.