Raising the Social Security Retirement Age

A reader writes in, asking:

I just got laid off at age 58. I know people are saying it’s best to wait until 70 for SS, but I don’t think I’ll be able to do that. I know my savings can make it to 62, and once SS starts that will be enough to cover my cost of living. But I’ve read about politicians wanting to raise the SS retirement age to 68, and I don’t know what I’ll be able to do if that happens. How likely do you think that is?

Firstly, every proposal I’ve read for increasing the Social Security full retirement age would only affect people who are many years away from being able to claim benefits. People who are closer to being able to claim benefits would be unaffected.

More importantly though: Raising the Social Security retirement age would not mean you have to wait longer to claim benefits.

Every proposal I’ve seen on the matter is a proposal to increase the “full retirement age,” not the age at which a person can first claim benefits. In short, an increase in the full retirement age is simply an across-the-board cut in benefits for anybody affected — regardless of the age at which they claim.

The reason an increase in full retirement age is the same as a cut in benefits is that the amount of your monthly benefit check depends on how the age at which you claimed benefits compares to your full retirement age. For example, if you claim retirement benefits at 62 with a full retirement age of 67, you would be claiming 5 years early, meaning you would get 70% of your “primary insurance amount” (PIA). But if you claimed at age 62 with a full retirement age of 68, you would be claiming 6 years early, meaning you would get 65% of your primary insurance amount.

Similarly, if you claim benefits at age 70 with a full retirement age 0f 67, you would receive 124% of your primary insurance amount, because you waited three years beyond your full retirement age (with each year earning credits worth 8% of your PIA). But if you claim at age 70 with a full retirement age of 68, you would only be claiming two years past your full retirement age, meaning you would only get 116% of your PIA.

In short, if a person’s full retirement age were increased from 67 to 68, she would still be able to claim benefits at any age between 62 and 70. The difference is that she would receive 6-8% less per month than she would have received if her FRA had not been bumped upward by a year.