Raising the retirement age for Social Security
Under current law, workers who have paid Social Security payroll taxes and who were born in 1960 or later must wait until age 67 to retire in order to receive full benefits. (For workers born from 1943 to 1954, the full retirement age is 66; for workers born from 1955 to 1959, the full retirement age increases in two-month increments each year.) Workers can retire and start drawing benefits as early as age 62 but are penalized in the form of reduced benefits. For example, a worker who retires at age 62 receives only 70 percent of a full benefit. Workers who delay retirement past age 67 can receive increased benefits: The monthly benefit of a worker would be 24 percent higher if they retired at age 70 than if they retired at age 67. However, workers receive no boost for retiring past age 70.
According to Roll Call, the RSC budget proposes to increase the age for full retirement benefits from 67 to 69 over an eight-year period beginning in 2026. More specifically, the age at which workers who retire could receive full benefits would increase by three months per year for those who will reach age 62 from 2026 to 2033. For workers who reach age 62 after 2033, the age for receiving full benefits would remain at 69. Thus, all workers who are now ages 59 or younger would see an increase in the age at which they could draw full retirement benefits. Current retirees or those who have reached age 62—the age of earliest eligibility for retirement benefits—by 2025 would be exempt from the increase.
The amount, under the RSC proposal, by which all subsequent retirees would see their benefits cut when the retirement age reaches 69 in 2033
Under the RSC proposal, when the retirement age reaches 69 in 2033, all subsequent retirees would see their benefits cut by about 13 percent—a function of the way benefits are calculated in the Social Security program. This cut would be especially damaging to individuals who retire at age 62. Under current law, these early retirees already receive only 70 percent of their full benefit, and under the RSC proposal, they would receive only 61 percent of their full benefit,* a reduction of approximately 13 percent. Similarly, those who retire at age 65 receive 86.7 percent of their full benefit under current law but would receive only 75 percent of their full benefit under the RSC proposal.** Again, using the same logic, this would result in a reduction of about 13 percent. The full retirement age for workers who reach age 62 from 2026 to 2033 would be 67 to 69—and these workers would also see cuts to their retirement benefits, though by lesser amounts than the cuts for younger workers.
Raising retirement age would disproportionately harm low-income and middle-income seniors
The harm from increasing the retirement age would fall disproportionately on low- and middle-income seniors, as they rely most heavily on Social Security for all or some of their income. The corresponding reduction in benefits would hit Black and Latino retirees particularly hard because they have less access to private retirement accounts and have lower balances in those accounts.
Workers who are currently age 59 would have only 3 years to adjust their retirement plans
According to Roll Call, the RSC proposal would give workers who are 59 today only three years to make adjustments to their planned retirement age, savings, and other financial choices in response to the gradual phase-in of a higher retirement age and/or reduced Social Security benefits. This is not enough time and will likely result in unnecessary hardship.
Responses to arguments for raising the retirement age
Proponents of increasing the full retirement age often argue that people are living longer and can work more years, so raising the retirement age would help address labor shortages. There are two problems with this argument.
First, many people cannot work longer as they age because they have poor health, are jobless, have caregiving responsibilities, or have physically taxing jobs. Research by the National Academy of Social Insurance found, “In 2012, over eight million older workers [ages 55 and above] were forced to retire earlier than they had hoped to due to health problems.” Second, the low-income and middle-income seniors who would be hardest hit by the increase in the retirement age have not seen the life expectancy gains that higher-income people have experienced. This is especially true for Black retirees, who, on average, have lower lifetime earnings than white retirees. Such retirees face a shorter life expectancy, on average, than white retirees. For many of these individuals, raising the retirement age would only put financial security further out of reach.
Some analysis suggests that those who are sick or injured could attempt to become eligible for Social Security Disability Insurance (SSDI) benefits while waiting to reach their full retirement age. Unfortunately, however, the RSC’s budget proposes precluding anyone over age 62 from applying for SSDI.
2 other RSC proposals for the Social Security retirement program
The RSC budget makes two additional changes to the Social Security retirement program that are harmful. The first would reduce benefits for future beneficiaries who as workers earn $80,652 or more annually (in today’s dollars) and who are currently younger than age 59.*** The budget suggests that workers with these incomes are “wealthy” and can afford this change, but many still struggle to make ends meet. Moreover, under current law, these beneficiaries have low replacement rates, which makes it difficult for them to maintain their pre-retirement standards of living. For example, the replacement rate—the ratio of Social Security benefits to pre-retirement earnings—is only 33.6 percent for a worker who retired at the full retirement age in 2022 with $96,039 in annual earnings (in today’s dollars).**** An effect of the RSC proposal is that these already low replacement rates would be reduced even further.
The second change would limit and phase out so-called auxiliary benefits for future beneficiaries who as workers earn $80,652 or more annually (in today’s dollars) and who are currently younger than age 59.*** Under current law, an important auxiliary benefit is the spouse’s insurance benefit. The spouse of a worker who retires and who has no earnings of their own—and hence no retirement benefit of their own—may receive a spouse’s insurance benefit that is equal to one-half of the worker’s retirement benefit. The spouse may have had no earnings or limited earnings because of time spent out of the workforce due to raising children, providing caregiving for other family members, poor health, or limited job opportunities. As discussed in the preceding paragraph, the retirement benefits for the workers whose spouses are subject to this proposal are already not high, and the cost of living is greater for a two-person household than for a one-person household. This makes it challenging for these retiree couples to maintain an adequate standard of living even with the spouse’s insurance benefit. If this benefit is phased out, the ability of the couple to maintain an adequate standard of living after the worker retires would be further reduced.
These two proposals, in combination with the RSC proposal to raise the retirement age to 69, would cut spending in the Social Security retirement program by $224 billion over the 10-year period from 2024 to 2033. The program would see further spending reductions in later years.
RSC claim regarding President Biden and Social Security is false
The RSC budget claims that President Joe Biden is proposing to cut Social Security retirement benefits by 23 percent in 2033. In fact, the Biden administration is proposing no such thing. Benefits would be cut by 23 percent in 2033 if no legislation is enacted before then to shore up Social Security’s finances. Moreover, the president’s budget for FY 2024 makes clear that the administration “opposes any attempt to cut Social Security benefits.” Furthermore, President Biden previously proposed to improve Social Security’s financial state by levying the Social Security payroll tax on earnings above $400,000, and his budget for FY 2024 states, “The Administration looks forward to working with the Congress to responsibly strengthen Social Security by ensuring that high-income individuals pay their fair share.”
The RSC budget, if enacted, would change the Social Security program by significantly reducing benefits for future retirees who will depend on the program to make ends meet. One of the changes—raising the retirement age—would especially hurt low-income and middle-income retirees. The budget would also make myriad changes to SSDI by cutting benefits, reducing eligibility, and decreasing access to representation in the appeals process. All told, the RSC budget proposes $718 billion in cuts to the Social Security program over 10 years and further spending reductions in later years. Congress and the president should reject these changes.
The author wishes to extend his great appreciation to Jean Ross, Jessica Vela, and Mia Ives-Rublee for their extremely helpful reviews, comments, and suggestions for this column.
* An early retiree would receive 61 percent of their full benefit, which is approximately 87 percent of the 70 percent of the full benefit that they would receive under current law. Section 202 of the Social Security Act specifies that the actuarial reduction for the benefit for a worker who retires five years before full retirement age is 30 percent. Thus, when the full retirement age is 67, a worker who retires at age 62 receives a reduction in benefits of 30 percent. If the full retirement age were raised to 69, as under the RSC proposal, the Social Security actuaries have recommended that for each of the extra two years from age 67 to the normal retirement age of 69, there would be a further reduction of 4.5 percent per year. Thus, the total reduction would be 39 percent—as the reductions do not compound—and the benefit would be 61 percent of the benefit at the full retirement age.
** Section 202 of the Social Security Act specifies that the actuarial reduction for the benefit of a worker who retires four years before full retirement is 25 percent. If the full retirement age were 69, as under the RSC proposal, a worker retiring at age 65 would be retiring four years before the full retirement age.
*** The RSC budget says that this proposal applies to those who “earn more than the wealthiest PIA benefit factor.” The wealthiest primary insurance amount (PIA) factor means the wealthiest PIA “bend point,” expressed in dollars per month. This bend point is $6,721 per month in 2023, which is $80,652 per year. Thus, the proposal applies to those who earn more than $80,652 per year in today’s dollars. Also, the RSC budget indicates that its two other retirement proposals apply to workers who are the same age as workers affected by the proposal to raise the retirement age.
**** This replacement rate pertains to a worker who claims benefits in 2022 at the full retirement age of 66 and six months.