Delaying Retirement: Should Average Life Expectancy Determine Retirement Age?



These days many Americans, whether political or not, are tuned into discussions about social insurance programs. Retirees and younger generations alike are questioning whether Social Security benefits will be ample enough to carry them through their retirement years.

Despite solvency for the next two decades, a number of options are being explored to ensure Social Security benefits are available for generations to come. Potential solutions range from those that cut benefits for the long-term to those that increase federal revenues to maintain or boost retiree benefits. A consideration regularly discussed is the full retirement age and how it relates to the average life expectancy of Americans.

As life expectancies have trended upward, lawmakers have ticked up the age at which full benefits can be claimed. In 1900, life expectancy at birth was less than 50 years of age. By 1981, life expectancy had increased to nearly 74, prompting Congress  to institute a gradual increase in the full retirement age for Social Security benefits in 1983 – from age 65 to 67 for those born in 1960 or later. And while average life expectancies have been on the rise, it’s important to take a closer look at the averages broken out by various demographic factors.

Many communities are lagging behind the average life expectancy
 from the National Center on Health Statistics show a 4.5-year gap in life expectancy between whites and blacks in 2008, with whites living longer. Black men in particular have lagged, with a life-expectancy of 70.6 years at birth, compared with 77.2 for black females and 76.1 for white males. New research from Columbia University shows gaps in life expectancy based on education level, too – gaps that have widened over the past two decades. While life expectancy has increased for the most educated, the least educated haven’t kept pace. The gap for women, in particular, has widened, with less educated white women actually experiencing declines in life expectancy.

What this means for Social Security benefits
Demographic factors aside, Americans overall are living longer than in decades past. However, for many, this means living longer on fewer resources. Further raising the full retirement age would increasingly stretch the tight budgets of low-income retirees.

The Congressional Budget Office found that any increase in the full retirement age will result in decreased benefits for all retirees, regardless of age benefits are claimed. An analysis by the National Academy of Social Insurance (NASI) determined that the increase in the full retirement age from 65 to 67 resulted in a 13.3% cut in benefits for anyone born in 1960 or later.

Despite this, there have been countless proposals to further increase the age for retiree benefits. At NASI’s 25th Annual Policy Research Conference, a session entitled “Living Longer, Working Longer — and Social Security” explored the advantages and drawbacks of delaying collection of Social Security benefits. Although this session did not explicitly address raising the full retirement age beyond 67, there was extensive discussion about the fiscal implications of delayed retirement for workers who may or may not be in a position to do so.

Delayed retirement not an option for many
Research from the Social Security Administration shows individuals who are able to delay collection of Social Security retirement benefits beyond the full retirement age receive increased benefits for as long as they live. However, despite the financial incentives to delay retirement, this option is not desirable, or in some cases feasible, for many retirees.

Currently, eight in ten retirees receives reduced benefits because they claim Social Security benefits before the full retirement age. For some, it’s not about a choice to retire early. A number of workers simply cannot continue to work into their sixties, due to physical constraints and poor health conditions. Raising the retirement age would further reduce benefits for these claimants, potentially pushing thousands into poverty as they age.

So while increasing the full retirement age to 68 or even 70 may decrease Social Security’s long-term financing gap, it would also be a raw deal for those who will be collecting in the decades to come – especially for my own generation of millennials. I want more from social insurance, and it’s time we put options on the table that both increase solvency and boost benefits, so all Americans can retire in dignity. And NASI’s new survey results show I’m not alone – Americans agree benefits could be improved and are willing to pay more for those benefits.

Originally posted by the National Academy of Social Insurance

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