Many Americans eagerly look forward to a time when they can stop working and officially set their status to “retired.”
But when asked what age they anticipate that could be, there isn’t a consensus.
The average age when people say they hope to retire is 62, according to one survey.
That is also the age at which people can first claim Social Security retirement benefits, so long as they are eligible based on their work records.
However, people receive reduced benefits for claiming early. If they wait until full retirement age to claim — generally 66 or 67, depending on when they were born — they receive the full benefits which they have earned. If they wait until age 70, they stand to get an 8% per year benefit increase over their full retirement age.
Meanwhile, the House of Representatives last week approved a retirement bill that would push out the age for required minimum distributions on certain savings accounts to 75, up from the current age of 72. That change, if it passes the Senate, would be gradually phased in by 2032.
The proposal reflects a reality that many people today are generally healthier than generations past and therefore are living and working longer, said Mark J. Warshawsky, a senior fellow at the American Enterprise Institute and former deputy commissioner for retirement and disability policy at the Social Security Administration.
“It should cascade to other official ages throughout the tax code and the government’s programs, Social Security included,” Warshawsky said.
To be sure, no imminent changes to the Social Security program are in the works.
“It has and will continue to be the third rail of politics because of the public sensitivity around the issue,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
That does not mean there is no urgency around the issue, however.
The trust funds that the Social Security Administration relies on to pay benefits are projected to become depleted in 2034. At that time, 78% of promised benefits will be payable, the government agency said last year.
To shore up the program, lawmakers have a choice of increasing taxes on benefits, raising payroll taxes or increasing the retirement age. Any enacted changes could include a combination of all three.
Of note, Social Security advocates are staunchly against tweaking the Social Security retirement ages.
“An increase in the full retirement age is just a benefit cut,” said Joe Elsasser, founder and president of Covisum, a provider of Social Security claiming software.
How the retirement age could change
Retirement ages were last altered in 1983 under then-President Ronald Reagan.
Those changes, which raised the full retirement age to 67 from 65, are still being phased in today.
Even just the bump up to age 66 from 65 represented a 5% benefit cut, Elsasser noted.
Many experts expect that any future changes could push up the Social Security retirement age. Notably, the Social Security 2100 Act: A Sacred Trust, introduced by Rep. John Larson, D-Conn., last year, would leave those thresholds unchanged and, in some respects, make benefits more generous. But the legislation has a five-year timeframe.
Separately, the Social Security Administration has scored the financial effects other proposals to change the age thresholds could have on the program.
“I expect that at some point in the not too distant future, Congress will agree on a Social Security package that includes some type of adjustment to the retirement age,” Akabas said. “Whether that’s in two years or 10 years, it’s very difficult to predict.”
Experts say it’s possible the full retirement age could get pushed up by a year or two, which could be gradually phased in.
Additionally, lawmakers could also raise the initial age for eligibility for retirement benefits from 62, as well as the highest age for delaying benefits and earning benefit increases from 70.
Adjustments could make it so the most vulnerable — those who are forced to retire at the earliest possible age — don’t see the same type of benefit reduction, Akabas noted.
How to plan for future benefits
In 2000, the average age at which people retired was roughly 61 or 62. Two decades later, it’s around 66, according to government data, Warshawsky said.
“Just in 20 years, we’ve seen a substantial increase in the retirement age,” Warshawsky said. “People really, really are working longer.”
Anecdotally, Elsasser said he sees more people retiring earlier than they had anticipated as their work prospects change.
That highlights the importance of planning ahead, so you anticipate whatever your retirement years bring. Admittedly, that can be tricky, given that Social Security could be susceptible to change.
If you’re 60 and up, there is less reason to worry any prospective changes would affect your benefits, Elsasser said.
But if you’re 45 to 60 years old, it’s reasonable to plan for benefit reductions of about 5%, he said. For those who are even younger, a 10% to 15% cut is possible.
Moreover, people of all ages should also plan for worst-case scenarios in which the program does reach a point where it can only pay a portion of benefits, which may prompt as much as a 24% benefit cut for retirees.
“The real importance of planning is just making sure you have all your bases covered,” Elsasser said.