Options for Increasing the Social Security Retirement Age

According to research for Congress, more Americans still apply for Social Security benefits in the year they turn 62 than in any other year, even though the penalty for doing so increases as the “full retirement age” for those payments rises.

According to the Congressional Research Service, this is very important because if the full retirement age were to be raised to fix the program’s long-term budget problem, the penalty for taking benefits early would get worse.

As pointed out in many previous CRS and other reports, if things keep going the way they are, the program will only be able to pay the full promised benefits until 2035. After that, its reserves will be gone, and money from payroll taxes will only be enough to cover about 80% of benefits.

It stated that “proponents of raising the retirement age claim that average life expectancy is rising, older employees’ health conditions are improving, and job characteristics are more suited to older workers.”

People who apply for benefits between the ages of 62 and full retirement age (FRA), which is 66 and 4 months this year, pay the penalty in the form of lower benefits. Those who wait to claim benefits after full retirement age get a gradual increase in benefits until they reach age 70, after which there is no more increase.

The penalty, which was 20% when the full retirement age was 65, is currently around 27%, thus rising as the full retirement age increases. When the full retirement age for anyone born in 1960 or later reaches 67 in 2027, it will be 30% for those who file at age 62.

Despite the penalty, 29.3% of Social Security claims are made in the year the claimant turns 62, compared to 24.7% in the year the claimant turns 66, according to the research. Another 28.1% of people submit their paperwork before turning 66, with the others doing so after (including 9.6% who wait until age 70).

According to the research, lowering the full retirement age to 69 would increase the penalty for filing at age 62 to 40% and the penalty for filing between that age and 69 to 40%.

One option would be to raise the earliest eligibility age or EEA, either on its own or at the same time as an increase in the full retirement age. It would, however, “present complications for workers between both the age 62 and the new EEA who are unable to work at or past age 62 due to health or employment reasons.” 

Raising the retirement age would also encourage some workers to apply for Social Security disability benefits if they had health problems, which would likely result in more people signing up for those benefits and higher costs for the Social Security program. 

The report said that raising the retirement age could make some older workers more likely to lose their jobs as they won’t be able to get Social Security retirement benefits anymore.

Increasing the standard retirement age to limit future payments.

A long-term funding issue with Social Security exists. Many millennial workers fear that the situation may be so bad that they won’t ever receive a social security check. Reducing promised benefits and moderately raising payroll taxes is the most sensible answer to Social Security’s budget issue.

Raising the standard retirement age and early qualifying age for retirement pensions is a logical method to limit future payments. Since Social Security was founded in the 1930s, life expectancy has increased significantly, which makes this reform necessary.

A significant rise in lifetime Social Security benefits results from an increase in life expectancy when the average retirement age stays the same.

The long-term trend toward earlier retirement, a tendency that has slowed substantially since the late 1980s, would likely reverse itself if the typical retirement age were raised. The majority of current research, however, indicates that the impact of raising the typical retirement age on labor market participation will probably be minimal.

If both the standard retirement age and the early qualifying age for pensions were raised, the increase in older workers’ labor force participation rates would most likely be higher (currently age 62).

In the long term, American firms won’t have any major issues granting older workers’ requests to continue working. Employers may feel pressure to make employment more appealing to elderly employees because labor force growth will decrease significantly in the coming century.

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