Raising Social Security's Retirement Age Is a Benefit Cut - And It Would Hit Some Workers Much Harder Than Others

One extra year may not sound like much when retirement is still a long way off. If it pushes back when you can receive your full Social Security benefit, though, the cost can follow you for years.

The Congressional Budget Office (CBO), Congress's nonpartisan budget agency, says raising the full retirement age would reduce lifetime benefits for affected workers no matter when they claim. The hit could be especially tough if your job is hard to keep doing later in life or you have little savings to fall back on.

A smaller lifetime benefit can change what retirement looks like, and seeing how the proposal could affect your check can help you make the right moves ahead of time.

What a higher retirement age would do to your check

Under current law, your full retirement age is 67 if you were born in 1960 or later, which is when you qualify for 100% of your earned benefit. Claiming before 67 permanently reduces your monthly check, while waiting longer can increase it through age 70.

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 at 65 would receive average monthly benefits about 13% lower than under current law.

Waiting longer could bring the monthly benefit closer to what current law provides, but you would spend more time without Social Security. CBO found that affected workers would receive less in lifetime benefits whether they claimed at the same age or delayed.

Working longer may not be realistic for everyone

A higher retirement age can be easier to handle if your job is one you can keep doing comfortably into your late 60s, but for many workers, that's not the case.

The Economic Policy Institute found that just over half of workers ages 50 to 70 perform at least one physically demanding activity at work, and about 32% of workers ages 55 to 64 are in physically demanding jobs such as construction or nursing and home health care.

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

Workers in physically demanding jobs could end up with a difficult choice between staying employed longer or retiring when they planned and accepting a smaller check.

The same age increase can cost some workers more

Americans are living longer on average, but those extra years have not been shared evenly across income levels.

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

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 more years of income under the current rules.

The BPC concluded that raising the retirement age would "disproportionally curtail lifetime benefits for lower-income workers with shorter life expectancies."

Who would absorb the biggest financial hit

A smaller Social Security check can be especially tough when most of your retirement income already comes from the program. SSA 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 take away a much larger share of the money available for everyday expenses. With less income coming from savings or a pension, raising the retirement age could be especially difficult for people who depend most heavily on their monthly Social Security check.

Other Social Security fixes are also on the table

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 gap.
• Protect lower-paid workers: A higher minimum benefit could help people with long careers in low-wage jobs.

Congress could also raise the retirement age more gradually if it becomes part of a larger deal. The 1983 Social Security reforms took 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 stay 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 plan to retire, giving you more time to keep your retirement goals within reach even if Social Security's rules eventually change.

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