What you need to know
- A report by the American Academy of Actuaries looks at the benefits of raising the social security age.
- Longer life expectancy and a declining relationship between workers and retirees put stress on the system.
- Yet there are socio-economic imbalances that make it problematic to change the system, points out Marcia Mantel and other experts.
When it comes to solutions for social security financing, there is always one issue: raising the retirement age. Of course, the full retirement age for social security benefits was raised in 1983, from 65 to 67, depending on the year of birth. Other ideas include increasing the age of eligibility for social security benefits from 62 and allowing retirees to delay claims after 70 years.
The American Academy of Actuaries has published one new paper explore the effectiveness of these ideas. It looks at the impact of raising the “normal retirement age” (or full retirement age) or the age at which non-reduced social security benefits are paid.
As noted in the paper, “The Academy’s Social Security Committee believes that raising the retirement age is likely to be one of the key elements in any legislation passed to restore social security’s long-term financial health.”
Pension experts agreed that this change would strengthen the system. But they pointed out that such an increase would hit workers in certain industries particularly hard – and that Medicare premiums should be part of the conversation.
According to data from the old age, survivors’ and disability insurance, the average man of 65 in 1970 had a life expectancy of 13.1 years and a woman of 17.1 years. In 2019, life expectancy for men aged 65 to 18.1 years and women to 20.7 years increased. It continues to rise.
That 2021 Social Security Trustees report noted that the old age fund was about to run out of money in 2033. At that time, benefits would be cut by approx. 25%. Many options for removing some stress from the system, such as increasing payroll taxes, have been discussed.
Meanwhile, workers have retired or at least demanded benefits later.
According to the report, “the average age at the start of unemployment benefits has increased by more than a year since 2005, the percentage of workers receiving unemployment benefits at an earlier age has fallen by almost half, and the percentage receiving unemployment benefits after normal retirement age is rough tripled. ”
For example, in 1995, while 52% opted for benefits at age 62, only 5% opted for them after normal retirement age or NRA. In 2019, however, 27% opted for benefits at the age of 62, while 16% demanded them after the NRA.
According to the newspaper, the tendency to retire later was attributed to several factors, including:
- Increased healthy life expectancy.
- Increased level of education and a shift towards less physically demanding jobs.
- A shift away from employer pension schemes.
- Concerns about adequate pension assets due to market downturns.
- Rising health care costs.
Of course, as the newspaper notes, Social Security’s program design encourages delayed claims, including increases in the NRA and the 8% increase for the delayed pension credit.
But a glaring problem exists: In 2010, there were 4.6 Americans in the best working age, 20 to 64, for every person 65 and older, or the retirement age. In 2020 it dropped to 3.5, and in 2060 it drops to 2.5.