Andrew Biggs of AEI has written a post on the virtues but also the limits of early retirement accounts, a subject we briefly addressed last week. After noting that the concept is appealing, Biggs explains that such a system couldn’t close Social Security’s fiscal imbalance without raising the normal retirement age to something outlandishly high:

Using the Policy Simulation Group’s Social Security models, I simulated a shift in the normal retirement age to 72 and the early retirement age to 68, taking full effect around 40 years from now. The idea is that individuals who held early retirement accounts their full lives would be subject to the full retirement age increase, while for older folks it would be phased in. Without including the accounts, the plan fixes around three-quarters of Social Security’s long-term deficit. If you include the accounts, then most likely the plan would increase the deficit relative to current law.
Now, you can always tweak the parameters to make things fit, so the fact that the numbers don’t add up isn’t a big deal by itself. But it’s the fact that you’d have to really tweak the parameters—say, shift the retirement age to 80 or so—that shows the scale of the Social Security shortfall. It might be smaller than Medicare, but it’s bigger than pretty much any other problem the government needs to fix. I don’t think early retirement accounts would be politically salable post-tweaking. [Emphasis added.]
An alternate solution would be to build more savings outside of Social Security, say, by automatically enrolling all Americans in 401(k) plans. If everyone saved enough to cover their needs for a few extra years of early retirement, we could shift the retirement age back without making enormous cuts in monthly benefits. My recent AEI paper on increasing the early retirement age of 62 hits on some similar points.

Andrew’s post is a useful reminder that the Social Security shortfall is bigger than is commonly understood, and there is value in taking action sooner rather than later.