Retirement & Financial Planning Report

Supporters of increasing the retirement age site increasing life expectancy and changing job conditions. Image: J.J. Gouin/Shutterstock.com

Even though the penalty for claiming Social Security benefits at the earliest possible age of 62 is increasing as the “full retirement age” for those benefits is increasing, more people still claim benefits in the year they are age 62 than any other, a report for Congress has said.

That is significant, the Congressional Research Service said, because the penalty for early claiming would grow more severe if the full retirement age is raised as a means of addressing the program’s long-term funding problem.

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As had many previous reports from CRS and others, the report noted that under current trends, the program will be able to continue paying the full promised benefits only until 2035, when its reserves will be exhausted and money coming in from payroll taxes will be sufficient to cover only about 80 percent of benefits.

“Supporters of increasing the retirement age contend that the average life expectancy is increasing, health conditions of older workers are improving, and job characteristics are more suitable for older workers,” it said.

Those who claim benefits between age 62 and full retirement age—which for those claiming this year is 66 and four months—pay a penalty in the form of reduced benefits (a phased in increase applies to those waiting to claim after full retirement age until age 70, after which there is no further increase). The penalty, which was 20 percent when the full retirement age was 65, is increasing as the rise in the full retirement age is continuing and is currently about 27 percent. It will be 30 percent for filing at age 62 in 2027, when the full retirement age hits 67 for those born in 1960 or later.

The report said that despite that penalty, 29.3 percent of claims for Social Security are filed in the year the person is age 62, compared with 24.7 percent when the claimant is age 66. Another 28.1 percent file before their age 66 year, while the remainder file afterward (including 9.6 percent who achieve the maximum increase for waiting until age 70).

The report said that raising the full retirement age to 69, for example, would increase the penalty for claiming at age 62 to 40 percent, with parallel increases in the penalty for filing between that age and 69.

One option would be to raise the earliest eligibility age, or EEA—either alone or in tandem with an increase in the full retirement age—but that would “create challenges for workers between the ages of 62 and the new EEA who have health or employment circumstances that limit their ability to work at or past age 62,” it said.

“Another concern surrounding an increase in the retirement age is that it would likely encourage some workers with health problems to apply for Social Security disability benefits, which would likely increase enrollment and costs for that component of the Social Security program. Increasing the retirement age may also result in some older workers becoming more vulnerable to unemployment risks because they would be no longer eligible for Social Security retirement benefits,” it said.

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