Reg Jones Expert's View

I’m sure that all of you know that the earliest age at which you would be eligible for a Social Security benefit is 62. And most of you remember that the full retirement age for all Social Security beneficiaries used to be 65. Then the law changed and, on a phased in basis, the full retirement age is moving to 67 for those born in 1960 and later—currently, it is 66. Now the Congressional Budget Office is proposing that the earliest age at which you could receive a Social Security benefit be raised. And it is proposing that full retirement age be increased, too.

According to the report, 40 percent of all Social Security beneficiaries begin receiving their benefits at age 62, despite the fact that their benefits are lower than they would be if they waited until they were closer to or at their full retirement age.

By the way, something I only assumed to be true was confirmed when I read CBO’s analysis: "The adjustment for the age of claiming benefits is currently actuarially fair, on average, so a person’s total lifetime benefits have approximately equal value regardless of the age at which he or she begins to collect them." In other words, if you apply for benefits as soon as possible (and live long enough), you’ll end up in the same place financially as if you’d waited until full retirement age and began receiving higher benefits.

But getting back to the CBO proposals, it recommends that the earliest age at which you would be eligible for a Social Security benefit be increased to 64. It would do this incrementally, adding two months per year, beginning with those born in 1950, who will turn 62 in 2012. For those born in 1961 or later, the eligibility age would be 64. The savings would be $33 billion over five years and about $144 billion through 2011.

It also recommends that the full retirement age be raised to 70. It would do this by adding two month increments for six years, "rising to 66 years and 2 months for workers born in 1950…and reaching 67 for workers who were born in 1955 or later…Thereafter it would continue to increase by two months per year until reaching 70 for workers born in 1973 (who turn 62 in 2035)." Unless the earlier recommendation to move the earliest age at which you could receive benefits was approved, you would still be able to apply for benefits at age 62. The reduction in outlays from this proposal would be about $12 billion over five years and nearly $120 billion over 20 years.

The basis for both these proposals is that people are living longer. As a result, the years during which Social Security benefits are being paid have increased dramatically over time. And that trend is continuing. It’s clear that expenditures will continue to outstrip income and will likely accelerate.

Besides reducing resources to older people, these proposals might provide an incentive to apply for disability benefits, which are more generous. The way around this would be to reduce disability payments to the amount an employee would have received if he retired at age 65.

Next week I’ll talk about a selection of CBO proposals that would alter the way Social Security benefits are computed and paid for.