Raise the retirement age, but only for those who can work more – Center for Retirement Research

Let’s see if we agree on what the retirement age is today.

With Social Security trust fund assets expected to dwindle in the 2030s, policymakers are looking for ways to fill the gap. An important proposal is to raise the retirement age. Certainly, with the average age increasing, longer careers may be one way to ensure an adequate retirement with less reliance on Social Security.

The problem is that life expectancy varies significantly across income spectrum, and gains in life expectancy have been much larger for the rich than for the poor (see Figure 1). Thus, raising the retirement age for all workers should be a non-starter. But incorporating later retirement into the system can prevent, where possible, major changes that could harm the vulnerable.

However, before we do anything, we need to agree on a minimum retirement age in the current Social Security system. Today, workers can claim benefits anytime between 62 and 70. Benefits claimed before the age of 70 are reduced on the basis of average age. In other words, claimant age affects monthly benefits but does not, on average, change the total benefits paid over a lifetime.

Despite the fact that 70 is the age at which Social Security provides the most benefits, policy discussions have focused on raising the “full retirement age” (FRA), which used to be the age at which workers could retire. Lifetime benefits were the highest. For a long time, the FRA was 65, but the Social Security Amendments of 1983 increased the FRA from 65 to 67 over a 23-year period. The age increase to 66 was phased in between 2000 and 2005, followed by an 11-year hiatus, and increased from 66 to 67 between 2017 and 2022.

Many recommend setting the FRA higher. However, increasing the FRA is not just a question of claiming for those who can work more. This is a benefit kit. For example, those who could delay retirement until 67 received two years fewer benefits than when the FRA was 65, and those who could not adjust their retirement behavior received an actuarial adjustment. Due to the increase in Importantly, those forced to claim at age 62 used to receive 80 percent of the full benefit, but now only receive 70 percent. If the FRA is increased to 70 years, this amount falls to 55%. Therefore, changing the FRA is a blunt instrument that affects both those who can overwork and those who cannot.

We need a different approach. We need to identify the guys who are going to end up in the fourth quartile of the income distribution and change the rules so that they must work more to get their current benefits. The question is how to do it in practice. One option is to simply use 10-year average indexed earnings to identify winners. But since the final score isn’t quite clear until the end of the game, such an approach may not give activists enough time to plan wisely. An alternative is to identify retirement age based on factors that occur earlier in life, such as level of education—evidence suggests that college graduates have the ability to retire without a college education.

The important point is that populations are not homogenous. The more privileged in our society are living longer and healthier lives. But the majority didn’t see much of a gain in life expectancy, much less in healthy life expectancy. Let’s be smart here and raise the retirement age for those who can work, without further harming those who can’t.

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