Research

September 23, 2021

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. …Learn More