The Reagan administration's social security proposals, like its economic recovery program, assume that changing the way money is distributed will change the way people behave.
Currently, 70 to 80 percent of social security recipients retire before they are 65. Under existing law, their social security payment is no less than 80 percent what it would have been if they had waited.
But President Reagan's planners don't want American workers to be lured into early leisure, so they're proposing to change the lowest benefit to 55 percent. They also want to reward those who continue to work after age 65, by phasing out a penalty that cuts $1 off a social security check for each $2 earned.
Will this monetary carrot-and-stick approach keep people on the job and off the social security rolls, thus saving the system from economic collapse? And how will the Reagan proposals affect the future social security benefits of today's younger workers?
The Reagan proposals come in the midst of a major social security reform effort led by Rep. J. J. Pickle (D) of Texas, whose House subcommittee has already begun making changes in the law. The Pickle changes, however, would be longer-range.
Congressman Pickle called the Reagan proposal a "sincere package" and promised his committee would study it and come up with a "bipartisan approach."
But he also cast doubts that the plan would solve the financial problems of the pension fund. "I am concerned that even with this [proposal], the program will be on thin ice and that we may still need an infusion of money into the fund," Pickle said.
The President's program won mixed reaction from the powerful senior citizens lobby spearheaded by the American Association of Retired Persons (AARP).
"They're on the right track in work incentive strategy," said James M. Hacking, assistant legislative counsel for the AARP. But he attacked the cut in early benefits as being "much too soon to give people time to plan."
Mr. Hacking added that most early retirees quit work at 62 because of health problems or because they have lost their jobs and cannot find new ones. Reagan's plan for social security
Currently . . .
* Worker with average income, retiring at 65 in 1987, would get $719.00 a month.
* At 62, retirees get 80% of benefits due them at 65.
* FICA rate: set at 7.05% of taxable wage base in 1985, 7.15% from 1986-89, 7 .65% from 1990-2019.
* Cost-of-living adjustment awarded each July.
* Benefits for retirees aged 65 to 71 cut $1 for each $2 of outside earned income.
* Disability benefits based on medical and nonmedical factors.
President's proposals. . .
* Worker with average income, retiring at 65 in 1987, would get $691.90 a month.
* At 62, retirees get 55% of benefits due them at 65.
* FICA rate: set at 6.45% of taxable wage base from 1985 to 2019.
* 1981 cost-of-living adjustment postponed until October and awarded each October thereafter.
* Penalties for earning outside income phased out over five years.
* Disability benefits based only on medical factors.
Dr. Henry Aaron, former chairman of the Advisory Council on Social Security and now a Fellow at Brookings Institution, agrees that "many people are forced to retire early." Although not commenting specifically on Reagan's proposals, Dr. Aaron says a significant change in eligibility rules would probably keep some people on the job.
"But those forced to retire early will then live on reduced benefits for the rest of their life," he says.
Dr. Merton Bernstein, a law professor and social security specialist at Washington University in St. Louis, isn't so sure that economic incentives will keep that many more people at work.
"The evidence isn't the best in the world, but [it seems to indicate] that people don't choose to retire. They're either already out of work or their health won't permit them to continue," he says.
Dr. Bernstein adds that "the impact for many would really be quite cruel."
Reagan's proposals, through a change in the way benefits are figured, also would probably result in smaller retirement checks for today's younger workers. "Bend points" are dollar figures used in deciding what percentage of your income comes back in social security cash. In 1977, "bend points" were indexed to inflation -- but Reagan is proposing to limit their rise to half the inflation rate.
Technicalities aside, this means smaller retirement checks for those now paying taxes. According to the administration's figures, a worker of average income who turned 65 in 1987 would qualify for a monthly payment of $719, under current law. With the Reagan proposals in effect, the check would be $691.90.
The proposals were announced at a press conference by Health and Human Services Secretary Richard Schweiker. Saying that if nothing was done the system could go broke "as early as fall, 1982," Secretary Schweiker hailed the program as able to solve both short and long-term financing crises.
The administration figures the cuts will save at least $46 billion dollars by 1986. This savings could be reflected in a lower social security tax rate: If the White House's economic assumptions come true, Schweiker predicted that by 1985 the rate could drop to 6.45 percent, from today's 6.65 percent.
That means young workers entering the labor force next year would pay 10 percent less in social security taxes over their lifetimes.
The proposed changes would further affect:
* Anyone, such as a retired federal employee, who enters social security-covered employment for only a few years. For such workers, the administration proposal would take into account pension dollars received from noncovered jobs.
* Workers who might qualify for disability insurance. The proposals would make it much harder to be officially labeled "disabled." Currently, more than one-third of disability cases involve nonmedical factors such as age and education, but the Reagan plan would have the decision made on strictly medical terms.
* Early retirees with young children. Under existing law, children under 18 (or 22 if still in school) are eligible to receive benefits based on their parents' work records. The proposal would eliminate this bonus.
Earlier in the day, at a breakfast meeting with reporters, Schweiker said "there's no way you can balance the budget" and not touch entitlement programs under social security.
"We're not cutting any present beneficiaries," he asserted, adding that he was pleased that the administration had come up with a program that did not move the retirement age from 65 to 68.