Why a Higher Social Security Retirement Age Would Reduce Benefits Unequally

One extra year may not seem significant when retirement is still far away. But if it delays when you can collect your full Social Security benefit, that change can affect you for years.

The Congressional Budget Office, Congress's nonpartisan budget agency, says increasing the full retirement age would lower lifetime benefits for affected workers no matter when they file. The impact could be especially severe for people whose jobs are difficult to keep doing later in life or who have little savings to rely on.

A smaller lifetime benefit can reshape retirement plans, and understanding how a proposal might affect your check can help you prepare in advance.

What a higher retirement age would mean for your check

Under current law, the full retirement age is 67 for people born in 1960 or later, which is when they can receive 100% of their earned benefit. Claiming before that age permanently lowers the monthly payment, while waiting longer can boost it through age 70.

The CBO modeled a gradual increase in the full retirement age from 67 to 69 and found that workers born in the 1970s who still claimed benefits at 65 would see average monthly checks about 13% lower than under current law.

Waiting longer could bring the monthly benefit closer to what current law offers, but it would also mean more time without Social Security income. The CBO found that affected workers would receive less in lifetime benefits whether they claimed at the same age or waited.

Working longer is not realistic for everyone

A higher retirement age may be easier to absorb if your job is one you can continue comfortably into your late 60s, but many workers do not have that option.

The Economic Policy Institute found that a little more than half of workers ages 50 to 70 perform at least one physically demanding task at work, and about 32% of workers ages 55 to 64 are in physically demanding occupations such as construction, nursing, and home health care.

For someone already struggling to remain on the job until 62, a higher full retirement age would not suddenly make longer work possible. Claiming at the same age would instead produce a smaller monthly Social Security benefit because the claim would be farther from full retirement age.

Workers in physically demanding jobs could face a difficult choice between staying employed longer or retiring as planned and accepting a smaller check.

The same change would hurt some workers more than others

Americans are living longer on average, but those extra years are not distributed evenly across income groups.

The Bipartisan Policy Center found that men in the highest income group live more than 12 years longer on average than men in the lowest income group. That gap means a higher retirement age would take more from people who already have less time to collect benefits.

A high earner who lives to 90 would still receive benefits for more than 20 years under a retirement age of 69. A low earner who lives to 78 would collect for fewer than 10 years, and would have received two additional years of income under current rules.

The Bipartisan Policy Center concluded that raising the retirement age would disproportionately reduce lifetime benefits for lower-income workers with shorter life expectancies.

Who would feel the biggest financial strain

A smaller Social Security payment can be especially difficult when most retirement income already comes from the program. The Social Security Administration projects that Social Security provides about 80% of household income for beneficiaries in the lowest income group, compared with about 14% for those in the highest.

For lower-income retirees, a benefit cut could remove a much larger share of the money available for everyday costs. With less income coming from savings or a pension, raising the retirement age could be especially challenging for people who depend most on their monthly Social Security check.

Other Social Security fixes are also under discussion

Lawmakers have discussed several ways to strengthen Social Security without relying entirely on a higher retirement age:

• Remove the payroll tax cap: Higher earners would pay Social Security taxes on more of their wages.
• Raise more revenue: Some proposals would use smaller payroll tax increases to help close the funding gap.
• Protect lower-paid workers: A higher minimum benefit could help people with long careers in low-wage jobs.

Congress could also phase in a higher retirement age more gradually if it becomes part of a broader deal. The 1983 Social Security reforms followed that approach, moving the full retirement age from 65 to 67 over many years so the change did not hit older workers all at once.

Bottom line

A higher retirement age could make retirement harder for people who cannot simply remain on the job for another year or two. If working longer is not realistic for you, a smaller Social Security benefit could leave a bigger gap to fill.

The good news is that changes like this rarely happen overnight. You may have years to adjust how much you save or when you expect to retire, giving you more time to keep your retirement goals within reach even if Social Security rules eventually change.

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