Retirement & Financial Planning Report

A recent Congressional Budget Office report describes a formula for increasing the age of “full” Social Security benefits eligibility, one of several steps the report lays out—although it does not specifically recommend—for addressing the system’s long-term financial shortfall.

The age of full benefits currently is 66, having phased up from the old 65, with another phased-up increase already in law—by two months for each year starting with those born in 1955—which will result in a full benefit eligibility age of 67 those born in 1960 or later. Reduced benefits still can be elected as young as age 62, although as the full benefit age increases, the reduction also increases. Benefits also can be postponed, with increases above the “full” amount paid for each year until starting at age 70, when there is no longer a benefit to waiting.

The report describes a formula in which rather than leveling off after the upcoming increase, the age would be further increased in two-month increments per year starting with those born in 1961 until it would reach age 70 (applying to those born in 1978 or later). Benefits still could begin as early as age 62 but the benefit would be reduced even further.

Said the report: “An argument for this option is that people who turn 65 today will, on average, live significantly longer and col¬lect Social Security benefits for more years than retirees did in the past, increasing their average lifetime Social Security benefits. In 1940, life expectancy at 65—the number of additional years a person was expected to live after reaching that age—was 11.9 years for men and 13.4 years for women. Since that time, life expectancy at 65 has risen by more than six years, to 18.2 years for men and 20.7 years for women. Therefore, a commit¬ment to provide retired workers with a certain monthly benefit beginning at age 65 today is significantly more costly than that same commitment made to recipients in 1940.”

Like the increase previously enacted, an increase likely would encourage some people to continue working longer and to begin drawing benefits at a later age, the report said. However, like the already enacted rise, it also could effectively encourage some to apply for disability benefits, it said.

Also, for people who depend on retirement benefits at age 62, increasing the full benefits age “would cause financial hardship, even if the total lifetime value of their benefits would be generally unchanged.”