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Would Raising the Full Retirement Age Really Save Social Security?

Trends suggest today’s younger workers would be hurt the most by another increase.

A man and a woman discuss financials in front of a computer screen.

The latest financial forecast from the Social Security trustees shows that the program’s trust fund will be depleted in 2033. At that point, Americans will confront a 23% across-the-board benefit cut, unless Congress takes action.

The report serves as a reminder of the need for Social Security reform. The topic is off the table during this year’s fight over the debt ceiling—as it should be, because the two topics are unrelated. But we do know how each of the two political parties hope to address Social Security reform.

Democrats generally favor shoring up the program’s finances by adding new taxes on the wealthy. Republican positions vary, but the only substantive proposal, from conservatives in the House of Representatives, would gradually raise the full retirement age (when you can receive 100% of your earned benefit) to 70, among other changes.

Politicians often pitch a higher full retirement age as a way to “save” Social Security for today’s younger workers. But a close look at the numbers tells a different story.

The Cost of Claiming Social Security Before Full Retirement Age

It’s clear that claiming Social Security at later ages would be beneficial for most workers.

A recent study co-authored by Boston University economist Laurence Kotlikoff concludes that “virtually all” American workers age 45 to 62 should wait beyond age 65 to collect Social Security benefits in order to boost monthly income. The study found that retirees potentially give up hundreds of thousands of dollars by taking Social Security benefits too early: The median loss from early claiming in the present value of household lifetime discretionary spending was a whopping $182,370.

The Social Security rules are designed to pay everyone roughly the same lifetime benefit, no matter when you claim, according to the life expectancy tables. You can file for a retirement benefit as early as age 62, or delay up to age 70. If you claim at age 62, your monthly benefit will be considerably smaller than if you claim at age 66—but you’re likely to collect those benefits for a greater number of years. Conversely, a later claim will give you a higher monthly benefit—but for a shorter period of time.

But in practice, many workers will benefit from a later claim—especially the higher-income, more-educated people with high odds of outliving the mortality averages. And married couples generally benefit from this approach, since the chances are good that one spouse will beat the mortality odds, potentially benefiting from a higher benefit through delay or from a survivor benefit.

For example, consider a person with an FRA of 66 who claims at age 62. This person will receive a reduced benefit for the rest of their life—25% lower than they would have received by claiming at FRA. Had they claimed at FRA, this person’s monthly benefit would have been worth 33% more than a claim at 62; had they claimed at age 70, it would have been worth 76% more.

Why Aren’t More People Delaying Social Security Claims?

There has been a trend toward later claiming in recent years, but the changes are not dramatic.

In 2021, 31% of retired worker claims were made by people age 62, down from 60% in 1998, according to an analysis of Social Security Administration data by the Urban Institute. But the vast majority of workers (84%) had still claimed benefits by age 66. Claiming at the latest ages remains relatively rare: Just 16% of claims are filed at age 67 or later.

Though the group is still relatively small, the number of people claiming at very late ages has nudged up a bit. For example, the percentage of claims at ages 67-69 was 2.9% in 2000, which more than doubled to a rate of 7.1% in 2021. Likewise, the percentage claiming at age 70 or later was just nine-tenths of 1% in 2021, compared with one-tenth of 1% in 2000.

Most workers don’t get anywhere close to a claim at age 70. And that’s not surprising, considering the universal nature of Social Security, which covers nearly all of the diverse U.S. population.

Working well past 65, or even past 70, can be feasible for better-educated knowledge workers. But it’s not a practical option for people who hold physically demanding jobs. What’s more, workers who intend to work longer often find their plans interrupted by a job loss, health problem, or the need to become a caregiver for a loved one.

If you’re not working, delaying your claim means you’ll need to meet basic living expenses through savings. Yet only about half of households have 401(k) accounts, and even among those, meaningful wealth accumulation has been limited to the highest income workers. Federal Reserve data shows that in 2019, retirement account balances in the lowest three income quintiles were too low to provide meaningful income across the span of retirement.

What Raising the Full Retirement Age Would Mean for Younger Workers

The claiming trends argue against an increase in the retirement age, and the reason is simple: A higher retirement age functions as a benefit cut, because it raises the bar on how long people wait to receive their full benefit. Every 12-month increase in the FRA roughly equates to a 6.5% cut in benefits.

And we’ve been down this road before. Under the Social Security reform legislation enacted in 1983, the FRA has been rising gradually over the past three decades, from 65 to 67. For everyone born in 1960 or later, the FRA is 67.

That means today’s younger workers will receive less from Social Security than older workers or current retirees, even though they are making the same Federal Insurance Contributions Act payments that today’s retired and near-retired workers have made.

And other trends look to be threatening for the retirement security of today’s younger workers, according to research by the Urban Institute. The causes include lower earnings growth; the erosion of defined-benefit pensions; and the global financial crisis, which wiped out trillions of dollars of household wealth and caused long bouts of unemployment. That crisis hit younger workers especially hard, and the effects are long-lasting.

The Urban report projects that 38% of early millennials will have inadequate income to meet their basic living needs at age 70, compared with 39% of late Gen Xers (born between 1973 and 1979), and 28% of late baby boomers (born from 1955 to 1964). The picture looks worse still for early millennials of color: 53% of Hispanic adults and 42% of Black adults will struggle to meet expenses.

And those troubling projections assume that Congress figures out a way to avert the 2033 insolvency deadline, which would reduce benefits even further.

Does Greater Longevity Mandate a Higher Full Retirement Age?

It’s true that average life spans in the U.S. have risen over the past couple of decades. The expected life span for men and women at age 65 has jumped more than 10% since 2000, according to the Society of Actuaries.

But further gains are not assured. Life spans actually have been falling since the onset of the pandemic, and U.S. life span gains have fallen behind the trend among other wealthy nations since the 1990s.

What’s more, higher longevity is not distributed evenly across the U.S. population. There’s a substantial and widening gap in mortality gains by income. For example, a 2015 study by the National Academy of Sciences found a gap of roughly five years between the highest and lowest income quintiles for men born in 1930; for men born in 1960, the gap was 12.7 years.

The bottom line for today’s younger workers: If you hear a politician talking about a plan to “save” Social Security by cutting benefits, grab your wallet.

Correction: (April 13): The first paragraph included an incorrect percentage for the amount of an across-the-board benefit cut. The text has been updated with the correct figure.

Mark Miller is a freelance writer. The opinions expressed here are the author’s. Morningstar values diversity of thought and publishes a broad range of viewpoints.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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