A Hard Look at Raising the Retirement Age

What You Need to Know

A report from the American Academy of Actuaries looks at the benefits of raising the Social Security claiming age.
Longer life expectancies and a declining ratio of workers to retirees is putting stress on the system.
Yet there are socioeconomic imbalances that make changing the system problematic, Marcia Mantel and other experts point out.

When coming up with solutions for Social Security funding, one topic always arises: raising the retirement age. Of course, full retirement age for Social Security benefits was raised in 1983, from 65 to 67, depending on birth year. Other ideas include increasing the age of Social Security benefit eligibility from 62 and allowing retirees to delay claims beyond age 70.

The American Academy of Actuaries has released a new paper exploring the efficacy of these ideas. It looks at the impact of raising the “normal retirement age” (or full retirement age), or the age “at which unreduced Social Security benefits are paid.”

As the paper notes, “the Academy’s Social Security Committee believes that raising the retirement age is likely to be one of the key elements in any legislation enacted to restore Social Security’s long-term financial health.”

Retirement experts agreed that this change would shore up the system. But they pointed out that such an increase would hit workers in certain occupations particularly hard — and that Medicare premiums needed to be part of the conversation.

Living Longer

According to Old Age, Survivors, and Disability Insurance data, in 1970, the average male at 65 had a life expectancy of 13.1 years, and a female of 17.1 years. In 2019, male life expectancy at 65 grew to 18.1 years, and females to 20.7 years. It continues to increase.

The 2021 Social Security Trustees Report noted that the old-age trust fund was on track to run out of money by 2033. At that point, benefits would be cut by roughly 25%. Many options to take some stress off the system, like increasing payroll taxes, have been discussed.

Meanwhile, workers have been retiring, or at least claiming benefits, later.

According to the report, “the average age at benefit commencement has increased by over a year since 2005, the percentage of workers collecting benefits at the earlier age has dropped by almost half, and the percentage collecting benefits after normal retirement age has roughly tripled.”

For example, in 1995, while 52% were electing benefits at age 62, only 5% were electing them after normal retirement age, or NRA. In 2019, however, 27% elected benefits at age 62, while 16% claimed them after NRA.

The trend toward retiring later was attributed to several factors, according to the paper, including:

Increased healthy life expectancies.
Increased education levels and a shift toward less physically demanding jobs.
A shift away from employer pension plans.
Concerns about sufficiency of retirement assets due to market downturns.
Increasing health care costs.

Of course, as the paper notes, Social Security’s program design incentivizes delayed claiming, including increases in NRA and the raise to 8% for the delayed retirement credit.

But a glaring problem exists: In 2010, there were 4.6 Americans of prime working age, 20 to 64, for each person 65 and older, or retirement age. In 2020, that ratio dropped to 3.5, and in 2060, it will drop to 2.5.