To save money, Social Security may raise the age at which people can retire, but no one knows what will happen to specific people and it will depend on their age. It might be helpful to know how lawmakers changed Social Security benefits in the past, as well as the results of any policy analyst reviews. The age at which you can retire from Social Security is not clear and needs more explanation.
Some people use the terms “full retirement age” (FRA) and “normal retirement age” (NRA) to talk about the same age. In both situations, the age at which you could start getting Social Security retirement payments is talked about. Your income will not go down or up if you choose to delay your retirement, even if you choose “early retirement.”
How will the increase in the normal retirement age affect retirees’ paychecks?
Before 1983, most people retired when they were 65 years old. The Social Security Amendments of 1983, on the other hand, gradually raised the NRA for people born after 1943. The NRA was raised to 66 for people born between 1943 and 1954. The NRA was gradually raised to 67 for people born after 1960.
The standard retirement age for people born in 1960 or after was raised from 65 to 67 when Social Security was greatly changed in 1983. This change was part of a deal that made the system’s finances better by lowering the value of benefits and raising FICA taxes.
Also, the changes to the normal retirement age only affected people under 40 years old. People over 41 years old kept their normal retirement age of 65, because politicians didn’t want to mess up the retirement plans of older workers. However, raising the retirement age could mean less money for new workers, especially those with low incomes.
Some politicians, including the Republican Study Committee, want to raise the full age of retirement for Social Security to 70 or older. When the retirement age goes up, benefits go down for everyone who is new to retirement or getting Social Security for the first time.
These cuts could be big because people from lower and middle-class backgrounds count on Social Security benefits more. People with lower incomes have not seen the rises in life expectancy that people with higher incomes have seen, which is often used as a reason to raise the standard retirement age.
People who want to raise the retirement age often use two unproven points of view: the US population is living longer, and while the average life expectancy at 65 has gone up since 1983, it hasn’t gone up much for the bottom half of workers, even before the COVID-19 pandemic.
Also, the life expectancy gap is big and getting bigger. Black workers have lower lifetime earnings and shorter life expectancies than white workers. This is mostly because of systemic racism, which includes discrimination in housing, education, health care, and jobs, as well as bias in the criminal justice system.
In the same way, supporters say that big changes need to be made to Social Security to stop automatic cuts when trust funds run out. But this is an odd argument, since raising the standard retirement age would have the same effect in the long run.
If the retirement age is raised to 70, new retirees would get about 20% less in average lifetime payments. But if Congress does nothing, Social Security’s funds will run out, causing a 23% cut for everyone who gets benefits. As it is, Social Security benefits are the main source of cash for people who receive them. To pay for necessary Social Security payments, it would be better and more fair to raise taxes. This is especially true for people with higher earnings whose life expectancy and incomes have grown much faster than the national average.
How might increasing the normal retirement age influence retirement planning?
Rising the age at which you can retire on Social Security or Medicare will make it harder for poor workers, retirees, and people with physically demanding jobs to leave. On the other hand, some workers may be able to put off retirement, especially wealthy white-collar workers who choose to keep working into their late 60s or even early 70s.
Politicians have been careful so far about taking views that could cause trouble, but after the elections in November, they may be more willing to take risks when they propose changes to Social Security and Medicare. It’s important to know about possible rises in the normal retirement age so that you can make smart choices.
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