According to the 2021 report of the Social Security Trustees, the Social Security Trust Fund will be able to pay full benefits until 2034, and incoming payroll taxes will be sufficient to pay 78 percent of scheduled benefits thereafter. Some are using this modest gap in long-term funding as a pretext to justify proposals for large cuts in Social Security benefits designed to reduce the federal deficit and increase Social Security’s solvency. One frequently discussed change to Social Security is to increase the age at which a retiree receives full benefits. For all retirees, increasing the full retirement age will result in a cut in benefits. It is therefore not surprising that this proposal is very unpopular with the American public. Not only is it unpopular; it’s also bad policy and one that the National Committee to Preserve Social Security and Medicare strongly opposes.
Retirement Age Has Already Been Increased
The retirement age for full Social Security benefits has already been increased from 65 to 67 for anyone born in 1960 or later. This increase was enacted in 1983 as part of comprehensive legislation to strengthen Social Security’s financing at a time when the program faced an imminent financial crisis. The increase in the full retirement age has been phased in slowly based on a person’s year of birth.
This retirement age increase significantly cuts benefits for anyone retiring before their new full retirement age. For example, when the full retirement age was 65, workers retiring at age 62 received an initial benefit that was 20 percent less than their full benefit amount. When the full retirement age reaches 67, workers retiring at age 62 will receive a 30 percent cut in benefits.
Despite these benefit cuts, more than half of all people applying for Social Security retirement start benefits before their full retirement age. The maximum reduction is incurred by starting checks at age 62 —– 27 percent of men and 31 percent of women start their benefits at age 62. If the full retirement was increased to 70, as proposed by some, a retiree at 62 would receive only 55 percent of his or her full monthly benefit. This reduction amount would vary depending upon the specific language of any eventual legislation. In any case, the reduction at age 62 would be nearly half should the full retirement age be increased to 70.
Impact of Raising the Retirement Age Beyond Age 67
Proponents of increasing the retirement age argue that people are living longer, and, therefore, can continue working for more years. However, the most recent report on longevity in the United States from the Centers for Disease Control and Prevention disputes this assertion. The report highlights a decline of one year in US life expectancy from 2019 to 2020. For men the decline was 1.2 years, for women 0.9 year. For African Americans the decline was even worse – 2.7 years; for Latinos it was 1.9 years; for whites 0.8 year. This decline in life expectancy continues a trend occurring over the last four years. While the COVID pandemic may account for some of the recent decline, other factors such as increased obesity, and drug and alcohol-related deaths have contributed to the trend. Even as pandemic deaths abate, the likelihood of this trend reversing is unpredictable.
An April 2016 report released by the US Government Accountability Office (GAO) found that lower-income men approaching retirement live, on average, 3.6 to 12.7 fewer years than higher income men. That is, most of the increase in life expectancy for those who reach age 65 is enjoyed by workers with higher incomes. This is not surprising considering they are less likely to have physically demanding jobs and more likely to be covered by high-quality employer-sponsored health insurance.
This growing gap between the lifespans of the rich and poor is already eating away at the benefits that lower income workers can expect from Social Security, the GAO report found. American men who make about $20,000 annually are likely to lose as much as 14 percent of their Social Security lifetime benefits because of their shorter-than-average lives, while men making $80,000 per year stand to see a gain of 18 percent in their benefits given their additional years on earth. Boosting the retirement age would only exacerbate those disparities, the GAO warned.
It is also important to recall that not everyone is healthy enough to continue to work even if they would prefer working into their later years. This is especially true of workers with physically demanding jobs. While fewer factory jobs exist today than in the past, many service jobs are backbreaking, including nursing and nursing home care, janitorial jobs, outdoor service jobs, waitressing, or any job where workers must stand on their feet all day. A March 2016 study by the Center for Economic and Policy Research found 10.2 million workers ages 58 and older employed in physically demanding jobs or jobs with difficult working conditions. Less than 28 percent of women aged 65-69 are in the labor force. The share is considerably lower for less-educated workers, who would be in the most physically demanding jobs. Expecting these millions of older workers to continue in these jobs an additional 3 or more years is often not reasonable or possible for them physically.
Finally, while many older workers may be healthy enough to work, jobs for them may simply not exist. Although high-income professionals are often encouraged to continue working indefinitely, few employers are eager to employ 70-year-old blue-collar or service workers. In fact, older workers are typically among the first targeted for buy-outs or reductions in force when the economy contracts and are rarely recruited by employers absent a severe worker shortage. Additionally, older workers generally experience longer average periods of unemployment than younger workers. Although studies have shown the many contributions older workers bring to their employers, most companies remain focused on the bottom line – which typically reflects higher costs for older employees. Today’s technological changes can also be challenging to an older workforce unless an employer prioritizes training. Few employers are willing to invest the significant amounts that would be needed to recruit or retain older workers when qualified younger workers are available to fill those jobs.
For these reasons, unless there is a dramatic change in employer attitudes or in the structure of our workforce, most workers will continue to retire below their full retirement age. Despite the impression left by some, the average yearly Social Security retirement benefit is modest – $19,931 as of January 2022. Cutting these benefits essentially in half by raising the retirement age will result in millions of today’s workers facing poverty in retirement and will exacerbate the disparity in lifetime benefits received by lower and higher-income individuals.
Those policymakers proposing raising Social Security’s retirement age should recognize what a dramatic change this would be for millions of American workers. American life expectancy is decreasing, not increasing. Instead of protecting future generations, raising the retirement age will dramatically cut benefits for younger generations of workers, especially those at lower-income levels. The cuts will have their greatest impact on those who can afford them the least – lower income workers with a shorter life expectancy, who are less likely to be able to continue working to age 70. Considering the modest nature of Social Security’s existing benefits, cutting them further, no matter how it is accomplished, should not be the first or even the last place Congress looks for budget savings.
Government Relations and Policy, March 2022