Total Change in US Retirement Age – Checks and benefits will also change

The recent proposal to raise the full retirement age (FRA) from 67 to 69 in the United States has sparked widespread debate, especially considering how it would impact future Social Security benefits. Congressman Brendan Boyle asked the Congressional Budget Office (CBO) to assess how such a change would affect beneficiaries across different demographics, including gender, income levels, and birth cohorts. The CBO’s analysis provides key insights into how raising the FRA could impact Americans’ Social Security benefits, their financial well-being, and the Social Security program’s stability.

How Raising the Retirement Age Reduces Social Security Benefits

The CBO analysis indicates that raising the FRA to 69 would reduce overall lifetime Social Security benefits for many Americans. Here’s how:

• Reduced Monthly Payments: Those who delay retirement by the increased FRA period would receive the same monthly payment, but only for a shortened retirement period. Conversely, individuals who claim benefits at the same age as they would have under current rules (say, 62) would see an even greater reduction in monthly benefits because the formula would assume a higher FRA.
• Program Budget Impact: By reducing the length of time beneficiaries receive payments, the Social Security program would incur lower total payouts, which could help improve the system’s financial sustainability.

It’s worth noting that these estimates assume the Social Security program continues paying benefits according to current schedules, even though the Social Security Trust Fund faces an impending depletion by 2034. Without legislative changes, benefits would eventually need to be reduced if the trust fund is unable to cover scheduled benefits beyond this point.

Timeline for Changes in the Full Retirement Age

Under the proposed policy, the retirement age would gradually increase starting with workers born in 1965, with a full two-year increase by the time it applies to workers born in 1972 and later. For these future retirees, the FRA would be 69, meaning those who choose early retirement at age 62 would face more substantial reductions in monthly benefits than under current law.

• Example of Benefit Reduction: For a worker born in 1972, claiming benefits at age 62 (rather than the new FRA of 69) would reduce their benefits by 40%, compared to a 30% reduction if the FRA remained at 67.

The gradual shift would affect beneficiaries differently depending on when they were born, and those in younger cohorts would face the most significant reduction in benefits if they opted for early retirement.

Effects on Specific Groups Based on Gender, Income, and Birth Decade

The CBO’s findings show that the proposed FRA increase would affect groups differently:

• Gender Differences: Due to variations in life expectancy and employment patterns, men and women would experience different impacts on their lifetime benefits. For instance, since women generally have longer lifespans, they might experience a more pronounced reduction in lifetime benefits.
• Income Levels: Lower-income beneficiaries, who are more likely to rely heavily on Social Security, may feel the impact more acutely. Since higher-income individuals often have additional retirement savings, the reduction in Social Security benefits may have less effect on their overall retirement income.
• Birth Cohort Impact: Younger workers born in later decades (post-1972) would face the most substantial benefit reductions if they chose to retire before their FRA of 69.

Implications for Disability Insurance (DI)

The CBO also noted that increasing the FRA could indirectly lead to a slight increase in government spending on disability insurance (DI), as some workers facing a later retirement age might turn to DI benefits if they are unable to continue working until 69. However, the FRA increase would not directly alter DI benefits for workers already meeting eligibility requirements.

Potential Financial Effects on Social Security’s Budget

The CBO’s analysis aligns with current Social Security projections, indicating that the combined Social Security trust funds may be depleted by 2034. This depletion would make it difficult for the program to fund the gap between annual expenditures and contributions from payroll taxes. The proposed FRA increase could help alleviate some financial strain, although it won’t solve the funding shortfall entirely.

Table: Comparison of Benefit Reductions Based on Retirement Age Under Current and Proposed Policies

Birth Year	Full Retirement Age (Current Policy)	Full Retirement Age (Proposed Policy)	Reduction at Age 62 (Current)	Reduction at Age 62 (Proposed)
1965	67	67	30%	30%
1970	67	68	30%	35%
1972+	67	69	30%	40%

This table illustrates how the retirement age increase will progressively impact benefit reductions for those who retire at age 62.

Key Takeaways

1. Lower Lifetime Benefits: Raising the FRA means a shorter payout period or larger monthly benefit reductions for early retirees, ultimately leading to lower lifetime benefits for most workers.
2. Diverse Impact on Demographics: Gender, income, and birth cohort all play roles in how individuals are affected, with younger, lower-income workers facing more significant challenges.
3. Increased DI Dependency: Some workers may turn to disability insurance as an alternative, which could lead to slightly higher DI expenditures.
4. Fiscal Benefits to Social Security: While not a full solution, the proposed increase could improve Social Security’s financial position by reducing benefit outflows.