The Normal Retirement Age May Be on the Way Up

When the Social Security program was created in 1935, the normal retirement age was set at 65. In 1983, at the time of the last major amendments to Social Security, Congress gradually increased the retirement age to 67 for workers born in or after 1960.

According to a new report by the American Academy of Actuaries, life expectancy at age 65 increased by about six and a half years from 1940 to 2019. Despite the temporary effects of the Covid-19 pandemic, the actuaries estimate that life expectancy at 65 will go up by another four years by 2090.

That makes it likely that one of the options to make Social Security more financially solvent will be to increase the normal retirement age, which is when retirees can begin receiving unreduced Social Security benefits.

According to the actuaries’ report,Social Security beneficiaries have been delaying collecting benefits from an average age of 63.9 in 1975 to 64.9 in 2019. Only 8% of beneficiaries claimed their benefit after the normal retirement age in 1975. By 2019, that percentage had doubled to 16%.

There are a number of reasons for this trend, including: increased healthy life expectancies, higher education levels and a shift toward less physically demanding jobs. The demise of employer-sponsored pension benefits in the private sector is another factor. That hasn’t fully impacted federal employees, although the pension benefit under the Federal Employees Retirement System is less generous than the one provided under the older Civil Service Retirement System.

In addition to raising the normal retirement age, other recent changes to Social Security have led people to wait to claim their benefits. These include eliminating the earnings test once the normal retirement age has been reached and increasing delayed retirement credits to 8% for those reaching the standard age in 2009 or later.

According to the actuaries, raising the normal retirement age to 69 or 70 would reduce the long-range projected Social Security deficit by roughly 30 percent. This, combined with other changes, could restore “actuarial balance” to Social Security. Those changes might include raising the Social Security tax rate and modifying the benefit computation.

Increasing the normal retirement age has some pretty serious drawbacks. It would, for example, further decrease the amount of benefits payable when an individual first becomes eligible for Social Security at 62. It’s also uncertain whether the labor market would be able to support more workers delaying retirement. Finally, some jobs are physically demanding, resulting in workers developing health problems that prevent them from working longer. This would force lower-wage workers who rely more heavily on Social Security as their primary source of retirement income to live on less money.

Addressing this issue might require boosting the income replacement formula for lower wage workers or setting a minimum benefit standard tied to the federal poverty level. 

After the 1983 Social Security changes, Congress overhauled the federal retirement system in 1986, creating FERS and increasing the minimum retirement age from 55 to 57 for employees born in 1970 or later. It’s possible that changing the minimum retirement age for Social Security would cause employers, including the federal government, to raise the retirement age required to receive pension benefits. 

Several proposals to change aspects of Social Security are under consideration in Congress, as they have been for years. But lawmakers have yet to take up any proposals that would restore long-term financial health to the program. The Social Security 2100: A Sacred Trust Act (H.R. 5723), introduced late last year by Rep. John Larson, D-Conn., would only extend the ability of the program to pay scheduled benefits before the projected depletion of the Social Security trust funds from 2034 to 2038, according to the office of the Chief Actuary at Social Security Administration. 

The National Active and Retired Federal Employees Association reported recently that of all the Social Security bills that have been introduced in the 117th Congress, only H.R. 5723 proposes improvements to Social Security’s solvency by expanding and strengthening the program.