What Would Raising Social Security’s Retirement Age Mean For Retirees?

You might have read that Social Security might raise its retirement age as a means to help fix the program’s financial challenges. If this happens, how could it affect you?

The answer is…we don’t know for sure, and it will most likely depend on your age. However, we can gain insights by looking at how lawmakers implemented prior changes to Social Security benefits and by learning about potential changes that policy analysts have been examining.

We’ll also discuss other impacts on your retirement planning should lawmakers decide to increase the retirement ages for Social Security and Medicare.

What’s The Current Social Security Retirement Age?

Understanding Social Security’s retirement age isn’t straightforward and requires some explanation. Social Security uses two different terms to describe the same age: “normal retirement age” (NRA) and “full retirement age” (FRA). Both refer to the age at which you could start your Social Security retirement income and it wouldn’t be reduced should you choose to take “early retirement” or increased if you choose to delay your retirement.

It’s also the age at which Social Security’s benefit formula calculates something called your “primary insurance amount” (PIA), which forms the basis of the Social Security benefits you’ll receive.

For decades leading up to 1983, Social Security’s NRA was 65. However, the Social Security Amendment of 1983 introduced gradual increases to the NRA for people born in 1943 and after. The NRA was increased to age 66 for people born between 1943 and 1954, then it continued to increase gradually until it reached age 67 for people born in 1960 and after.

Social Security’s Retirement Age Terms Are Misleading

By the way, the “full retirement age” isn’t the age at which you could start your retirement income and receive the highest benefits you could possibly receive. To do that, you’d need to delay starting your benefits until age 70 to receive the full, delayed retirement credits that maximize your benefits.

And there’s nothing normal about the “normal retirement age.” According to one report, only about one-fourth of new retirees started benefits at that age in 2022; about half started their benefits at an earlier age.

When Was The Last Time The Retirement Age Was Changed?

The last major overhaul to Social Security occurred in 1983, when the normal retirement age was gradually raised from age 65 (for people born in 1942 or earlier) to age 67 (for people born in 1960 or later). This increase in retirement age was part of an overall package that improved Social Security’s finances by decreasing the value of benefits while also increasing the FICA taxes collected from workers.

It’s instructive to know that the changes to the retirement age applied to people who were age 40 or younger when the changes were adopted; those age 41 and older kept the normal retirement age of age 65. Our lawmakers at the time didn’t want to disrupt retirement plans for older workers.

What Could The Retirement Age Be Raised To?

Once again, Social Security is faced with long-term funding challenges, and there have been several proposals floated to reduce their long-term deficit. Predictably, Republican lawmakers generally prefer to reduce the deficit through benefit cuts, which would include raising the retirement age. For example, one Republican proposal would raise the normal retirement age (NRA) to age 70. This proposal would reduce the value of benefits of affected retirees by about 20%, according to one analysis. Democrat lawmakers, on the other hand, generally prefer to reduce the deficit primarily through increasing FICA taxes, largely on more affluent tax payers.

Another key feature to any proposal would be the age of current workers that’s grandfathered into the current retirement age schedule. For example, a different Republican proposal would phase in an increase to the normal retirement age from age 67 to age 69 over an eight-year period beginning in 2026. People who reach age 62 in 2033 or later would receive the full increase to age 69. The proposal would grandfather in people who’ve attained age 62 by 2025.

What Are The Pros And Cons For Raising The Retirement Age?

The primary reason to raise Social Security’s normal retirement age is to reduce the long-term deficit. A key rationale used by lawmakers who want to increase the retirement age is that Americans are living longer than previous generations of retirees. Unfortunately, however, recent gains in longevity have only benefited about half of the workforce, mostly leaving out lower-income workers and workers of color.

And that’s the key disadvantage of raising the retirement age: Future retirees who rely on Social Security the most would be the very people who would be disadvantaged the most by raising the retirement age.

More Details On Changing The Retirement Age

Raising Social Security’s NRA would have another detrimental impact on retirement planning—that’s the age when Social Security no longer applies the earnings test, which imposes a penalty for working at the same time as collecting benefits. Once you attain the NRA, there’s no longer a penalty for working while receiving benefits. Raising the NRA would make it more difficult for lower-income workers to supplement their Social Security benefits with earnings from working.

It’s also important to note that it’s highly unlikely that people who are currently receiving Social Security retirement benefit or workers within a few years of retirement would be impacted by any increases to the retirement age.

Finally, all the proposals discussed so far only apply to Social Security retirement income benefits. The age for eligibility for Medicare is currently age 65 and is another important retirement milestone. Republicans have been considering raising that age to 67 to help shore up Medicare’s finances.

How Would Raising The Retirement Age Affect Retirement Planning?

Any increases to Social Security’s or Medicare’s retirement age will make retirement more difficult for lower-income workers and retirees and for workers with physically demanding jobs. On the other hand, some workers may be able to push back their retirement date, particularly more affluent, white-collar workers who are able to or want to continue working into their late 60s or even to age 70.

It’s election season, and you’ll want to learn about the positions of the politicians you might vote for. So far, many politicians have been hesitant to propose positions that may be unpopular with voters. However, once we’re past the November elections, elected lawmakers may be more bold and propose changes to Social Security and Medicare. You’ll want to keep abreast of any proposals to increase retirement ages and learn how they might apply to you.