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Social Security: Time for an Update?

The option to start Social Security benefits at any age from 62 to 70 – with an actuarial adjustment – is a key feature of the program. However, the adjustments – reductions in the monthly benefit for claiming early and increases for waiting – are decades old and do not reflect improvements in longevity or other important developments over time.

The option to claim early was introduced just over 60 years ago, when Congress set 62 as the program’s earliest eligibility age. The option to claim between 65 and 70 on an actuarially fair basis stems from the 1983 Social Security amendments, which gradually increased the annual “delayed retirement credit” from 3 percent to 8 percent. Also in 1983, reductions for early claiming were changed in tandem with the gradual increase in the full retirement age from 65 to 67.

The goal of actuarial adjustments to the monthly benefits has always been to ensure that retirees with average life expectancy could expect to get the same total lifetime benefits, regardless of when they started. But calculating lifetime benefits requires assumptions about how long people will live and assumptions about interest rates. The current calculations are based on life expectancy and interest rates in the early 1960s or 1980s.

Much has changed since those dates: life expectancy has increased dramatically and interest rates have declined. Longer life expectancy and, to a lesser extent, lower interest rates would each call for a smaller penalty for early claiming and a smaller reward for delaying claiming.

Consider what this means for baby boomers whose full retirement age is 67. Under the current system, if they claim at 62, they receive 70 percent of their age-67 benefit. However, to reflect decades of increasing life spans and falling interest rates, the researchers calculated that the accurate monthly benefit would be 77.5 percent of the age-67 benefit. That is, early claimers are penalized too much.

For workers who delay claiming, a discrepancy also exists between the current and accurate delayed retirement credits, though the difference is smaller since the credit was initially too small. Specifically, workers who wait until 70 to start Social Security today receive 124 percent of the benefit they would’ve gotten at 67, whereas 120 percent of the age-67 benefit would be more accurate.

It may make sense to consider fixing both actuarial adjustments as part of any Social Security reform package. Such a fix would be particularly helpful for low earners, who make up a disproportionate share of early claimers.

To read this study, authored by Andrew G. Biggs, Anqi Chen, and Alicia H. Munnell, see “The Consequences of Current Benefit Adjustments for Early and Delayed Claimers.”

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

8 Responses to Social Security: Time for an Update?

  1. This is an issue that needs to be fixed sooner than later.

  2. Joe Ruf says:

    I have some comments and questions……

    I have read recently that life expectancy in the US has decreased slightly, yet you are stating the opposite.

    What is the impact of having folks who have never contributed a dime into Social Security and are now collecting from it?

    I never see any stats regarding how many folks die each year and never collect anything from the system after their years of contributing into the system.

    • Joe-thanks for the questions. I can help with two of them:

      I should’ve made clear in the blog that this study looked at the impact of life expectancy on Social Security over several decades – and not just 2020, when life spans did reportedly decline due to Covid-19.

      Under Social Security’s rules, workers are eligible for retirement benefits after they have accumulated 40 quarters of work and paid payroll taxes for that work. Here’s a link to some information: https://www.ssa.gov/oact/progdata/insured.html

  3. Jack says:

    I’d like to know the answers to Joe’s questions too.

    My former boss paid in for over 40 years, he retired at 62 and died within one year. Most men die within one year of retiring so how does it benefit men to wait until 70 when they may not make 70?

    Where are the tables on how many years men collect their benefits?

    It is rumored Social Security will have to reduce the benefit to 80% of the current benefit by 2034. If that is true, wouldn’t a person retiring at 62 today receive a greater benefit than someone who retires at 70 in 2029?

    • Becca says:

      I am on SSDI and I only make $794. That’s not enough to live on when raising 2 kids on it. And I get a very small SSI payment. I think people need to be able to live on benefits not feel like they can’t make it. SS retirement has more leeway for you to go to work and still keep your benefits without worry.

  4. Jim Remley says:

    “Most men die within one year” of retirement. Not true.

  5. Phil Eschtruth Harrison says:

    If we reduce both the penalty for claiming earlier and the benefit for claiming later the inevitable result will be more people claiming earlier. I’m not sure if that is a desirable outcome.

  6. Bill white says:

    I am 70 and have received SSI payments since I was 62. If I live to 80 I will get around 200K during that time. If I live to age 90 I will get over 400K. I would take 150K right now and never hear from me again. I would receive more monthly from investments than I get now.

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