Increasing Retirement Ages

(Latest Distributional Estimates)

With Americans now living longer than previous generations and in better health, some experts are advocating an increase in Social Security’s retirement ages. Raising retirement ages would help even out the years of potential benefit receipt across generations. Concerns arise, however, over possible adverse effects for workers with health problems, especially those in physically demanding jobs.

Background

Retirees are eligible to receive Social Security benefits starting at age 62 (the early eligibility age). The full retirement age, also called the normal retirement age, is the age at which people can begin receiving unreduced Social Security benefits. A worker’s full retirement age depends on when he or she was born (figure 1).

• For people born before 1938, the full retirement age is 65.
• Legislation in 1983 added two months to the full retirement age for each birth year from 1938 through 1943, with the full retirement age reaching 66 for those born in 1943.
• The full retirement age remains fixed at 66 for those born between 1943 and 1954.
• The full retirement age will again increase in 2-month increments per year beginning with those born in 1955, until it reaches 67 for people born in 1960 and later.

Actuarial reductions apply for everyone who retires before the full retirement age.

• The reduction offsets the additional payments received by early retirees, roughly equalizing lifetime payments for workers who claim at different ages.
  • The adjustment will not be fair for people who expect––based on family history, say––to die earlier or later than actuarial tables indicate.
• The actuarial reduction for retired workers will increase as the full retirement age rises (figure 2).
  • People born before 1938 can receive 80 percent of their full monthly benefit when they retire at age 62 (and more with each month of delayed benefit claiming). People born in 1960 and later will receive only 70 percent of their full benefit at age 62.
  • Spouse and survivor benefits are subject to different actuarial reductions.
    • Actuarial reductions are steeper for spouses than workers. For example, a spouse who first receives Social Security benefits at age 62 receives 75 percent of the full spouse benefit if born before 1938, but only 65 percent if born in 1960 or later.
    • The maximum actuarial reduction for widows and widowers is 28.5 percent (so the reduced benefit never falls below 71.5 percent of the full benefit).
  • Disabled workers’ benefits are not reduced for early claiming.

• People who claim benefits after the full retirement age receive a delayed retirement credit to compensate them for the reduced number of lifetime payments they will receive.
  • Delayed retirement credits factor into benefits calculated for surviving beneficiaries.

How Could We Increase Retirement Ages?

There are various ways of boosting Social Security retirement ages, including accelerating increases in the full retirement age that have already been scheduled, further increasing the full retirement age, or boosting the early eligibility age.

• Some propose eliminating the hiatus in the full retirement age increase, with the full retirement age rising for those born between 1944 and 1954, reaching age 67 eleven years earlier than currently scheduled.
  • Other plans would shorten the hiatus so that the full retirement age reaches 67 five years earlier than currently scheduled.
• Some propose increasing the full retirement age beyond 67 (for example, to 68 or 70).
• Others propose indexing the full retirement age to longevity so that length of benefit receipt would remain similar across generations.
• Others propose increasing the early eligibility age, rather than only reducing the benefit available at the early age, which occurs when the full retirement age rises.
• Some proposals combine several of these elements (by shrinking the hiatus and indexing the full retirement age thereafter, for example).

Why Raise Retirement Ages?

As life expectancy increases, the program is paying benefits for longer periods. When Social Security first paid benefits in 1937, the average additional lifespan at age 62 was 14.3 years for men and 16.6 years for women. Today at age 62 a man can expect to live an additional 20.0 years and a woman can expect an additional 22.5 years (Social Security Administration 2008a).

• Higher retirement ages would encourage people to work longer and give them more time to save for retirement. (Butrica 2006).
• People can generally work longer now because the share of jobs that are physically intensive has dropped over time (Johnson 2004; Johnson et al. 2007).
• People can increase their annual retirement income by about half, on average, by working an extra five years before retirement (Johnson 2007).

What Are Some Drawbacks?

• Health problems and poor job prospects prevent some people from working longer (Johnson 2007). Unless these people receive generous disability or unemployment benefits, many will struggle to get by before qualifying for retirement benefits.

How Much Would Raising Retirement Ages Reduce Social Security’s Long-Term Deficit?

• Eliminating the hiatus in the full retirement age increase for the 1944-1954 birth cohorts would reduce the long-term actuarial imbalance by about 7 percent.
• Eliminating the hiatus and increasing the full retirement age to 68 (by two months per year) would reduce the 75-year deficit by about 27 percent.
• A similar proposal that gradually increases the full retirement age to 70 would reduce the deficit by about 36 percent. (All estimates are from Social Security Administration 2008b).

Who Is Proposing Changes to Retirement Ages?

Over the past decade, changes to the full retirement age have been prominent components of several Social Security plans, including the following:

• Aaron and Reischauer (1998);
• The 1994-1996 Advisory Council on Social Security;
• Liebman, MacGuineas, and Samwick (2005);
• The National Commission on Retirement Policy (1998), which inspired numerous pieces of congressional legislation;
• Plans of the President’s Commission to Strengthen Social Security (2001);
• The National Commission on Fiscal Responsibility and Reform.

Proposals to increase the early eligibility age beyond 62 have been less prominent.

Distributional Effects

The Retirement Policy Program at the Urban Institute uses the DYNASIM3 computational model to estimate the effects of different Social Security reform designs on different groups of Americans. See our latest estimates here.

See the Following Reports to Learn More:

Favreault, Melissa M. and Nadia S. Karamcheva. 2011. "How Would the President’s Fiscal Commission’s Social Security Proposals Affect Future Beneficiaries?" Washington, DC: The Urban Institute.

Butrica, Barbara, Karen Smith and C. Eugene Steuerle. 2006. “Working for a Good Retirement.” The Retirement Project Discussion Paper Series No. 06-03. Washington, DC: The Urban Institute. Full paper | Brief

Johnson, Richard W. 2004. “Trends in Job Demands Among Older Workers, 1992-2002.” Monthly Labor Review 127(7): 48-56.

Johnson, Richard W., Gordon B.T. Mermin, and Matthew Resseger. 2007. “Employment at Older Ages and the Changing Nature of Work.” Final Report to AARP. Washington, DC: The Urban Institute.

Johnson, Richard W., Gordon Mermin and Dan Murphy. 2007. “The Impact of Late-Career Health and Employment Shocks on Social Security and Other Wealth.” The Retirement Project Discussion Paper Series No. 07-07. Washington, DC: The Urban Institute.

Johnson, Richard W. 2007. “Should People Work Longer, and Will They?” The Retirement Project Fact Sheets on Population Aging.

Mermin, Gordon. 2007. “Are Employers Willing to Hire and Retain Older Workers?” The Retirement Project Fact Sheets on Population Aging.

Steuerle, C. Eugene. 2000. “Middle-Age, Old-Age, and Survivors Insurance (MAOASI)?” Straight Talk on Social Security and Retirement Policy No. 23. Washington, DC: The Urban Institute.

Wittenburg, David C., David C. Stapleton and Scott B. Scrivner. 2001. “How Raising the Age of Eligibility for Social Security and Medicare Might Affect the Disability Insurance and Medicare Programs.” Social Security Bulletin 63(4):17–23.

Other References:

Aaron, Henry J. and Robert D. Reischauer. 1998. Countdown to Reform: The Great Social Security Debate. New York: Century Foundation.

Advisory Council on Social Security [1994-1996]. 1997. Report of the 1994-1996 Advisory Council on Social Security. Volume 1: Findings and Recommendations. Volume 2: Reports of the Technical Panel on Trends and Issues in Retirement Savings Technical Panel on Assumptions and Methods and Presentations to the Council. Washington, DC: Author.

Liebman, Jeffrey, Maya MacGuineas, and Andrew Samwick. 2005. “Nonpartisan Social Security Reform Plan.” http://www.ksg.harvard.edu/jeffreyliebman/
lms_nonpartisan_plan_description.pdf.

National Commission on Retirement Policy. 1998. The 21st Century Retirement Security Plan. Washington, DC: Center for Strategic and International Studies.

President’s Commission to Strengthen Social Security. 2001. Strengthening Social Security and Creating Personal Wealth for all Americans: Report of the President’s Commission. Washington, DC: Author. http://csss.gov/reports/Final_report.pdf.

Social Security Administration, Office of the Chief Actuary. 2008a. “Cohort Life Tables.” Unpublished estimates based on the Intermediate Assumptions of the 2008 OASDI Trustees Report.

–––––. 2008b. “SSA provisions.” http://www.ssa.gov/OACT/solvency/provisions/retireage_summary.html.

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