Raising Social Security's Retirement Age
When Social Security first started paying regular monthly benefits in 1940, males born in that year had a “period” life expectancy of 61.4 years and females 65.7 years. Period life expectancies are based on the mortality rates in that calendar year assuming there are no future mortality improvements. Today those average numbers have increased to 76.7 and 81.4 respectively, an increase of about 15 years. This increase creates a very different environment in which Social Security operates today. For Social Security, it is also important to look at the life expectancy for a 65-year old reflecting the time period over which Social Security benefits would generally be paid. On average, those period life expectancies are 83.2 for a man reaching age 65 today and 85.7 for a woman turning age 65 today. Periods of retirement over 20 years are common.
These significant improvements in longevity and the longer period over which benefits are paid since the inception of Social Security have significant cost implications that need to be addressed. This is still true even though the data shows that recent increases in longevity have generally slowed down or ceased in the most recent data available.
|Questions to consider:
In 1983, legislation was enacted to gradually delay what is termed the Full Retirement Age (FRA)—the age at which a person first becomes eligible for full or unreduced retirement benefits (early retirement brings with it a reduced retirement benefit)—from age 65 to age 67, depending on year of birth. For those born in 1960 and later, the full retirement age is fully phased in as of age 67. The decision was made to leave the retirement age unchanged for certain older retirees and the retirement age was changed only modestly compared to the longer life expectancies since the inception of Social Security for future retirees.
Many Social Security reform proposals made in recent years include a provision to raise the retirement age with a gradual phase-in. One proposal would raise the full retirement age by one month every two years until the FRA is age 69 for those born in 2008 and later. Another proposes faster increases to an ultimate FRA of age 69. Historically, the most popular Social Security claiming age has been age 62 (the age when benefits first become available) but workers have been delaying claiming more and more. Increases in the FRA would lower the benefit for those claiming at age 62, or any age prior to their FRA.
What Are the Advantages of Raising the Retirement Age?
Social Security would be made more sustainable over the next several generations because its costs would be lower. This is because benefits would be paid over a shorter period for those who delayed claiming or would be otherwise reduced. Also, the longer people are in the work force, the more Social Security taxes they and their employers would be paying. How much Social Security costs would be lowered would depend on the specifics of how quickly and how high the FRA would be raised and how individual behaviors would change in response.
Such a step could enhance equity across generations. Without a change in the FRA, future retirees would collect more benefits over their lifetimes than previous retirees because they would live more years in retirement. However, at the same time, if they stayed in the work force longer, they would also be paying Social Security taxes for more years.
Additionally, raising the FRA could give workers more time to build their retirement savings.
What Are the Disadvantages of Raising the Retirement Age (Longevity Improvement for Americans Varies)?
Low-wage workers and those with physically demanding jobs often have shorter-than-average lifespans and could have a difficult time living with the benefit cuts from a higher retirement age. In addition, some workers in physically demanding jobs may not be able to work beyond a certain age. There are also differences in longevity based on many other factors such as individual health, heredity and economic circumstances.
Ways to mitigate some of these effects should be addressed. These could include changes to disability rules to benefit specific workers who are unable to perform their jobs after reaching a certain age and implementation of minimum benefit levels.
Raising the full retirement age to strengthen Social Security (usually in conjunction with other changes) is one option that seems to have some support. The rationale for this change is the increased life expectancies that are extending the years in retirement collecting Social Security. Because of the importance of Social Security to the financial security of many Americans, the implications of raising the FRA would need to be carefully considered and addressed in any Social Security reform proposal.
The 2020 Social Security Trustees Report does not reflect the COVID-19 pandemic and states that the magnitude of near-term and long-range effects on the population and economy is unclear. For example, payroll tax revenues will decline in 2020, which will have a detrimental impact on Social Security financial projections and would likely change some of the numbers in this guide. Such potential effects of the pandemic illustrate a need to consider Social Security reforms in the near term so that a wider range of options that might provide a more gradual approach to benefit or revenue changes can be considered.
Additional Resources From the Academy