Social Security’s Real Retirement Age Is 70

Social Security was designed to replace income once people could no longer work. In the 1930s, the retirement age was set at 65, which coincided with the age used by many private and public pension plans. In the late 1950s and early 1960s, Congress changed the law to enable workers to claim benefits as early as 62. But benefits claimed before 65 were actuarially reduced, so that those who claimed at 62 and those who claimed at 65 could expect to receive about the same total amount in benefits over their lifetimes. In the early 1970s, Congress introduced the Delayed Retirement Credit, which increased monthly benefits for those who claimed after the so-called Full Retirement Age of 65. That credit, which was modest at first, now fully compensates for delayed claiming. As a result, lifetime benefits are roughly equal for any claiming age between 62 and 70, and the highest monthly benefits are available at 70. In that regard, 70 has become the new 65. Moreover, the level of monthly benefits at 70 appears appropriate given the increased deductions for Medicare premiums, the greater taxation of benefits, the declining importance of the spouses’ benefit, and the diminished sources of other retirement income. This brief aims to clarify Social Security’s current benefit structure. The discussion proceeds as follows. The first section describes how 70 became Social Security’s new retirement age. The second section explores whether 70 is the “right” age by looking at “equivalency” to 65, the increasing dispersion in life expectancy by socioeconomic status, and actual retirement patterns. The third section looks at the Social Security replacement rates that workers will face at different retirement ages. The fourth section clarifies that with the maturation of the Delayed Retirement Credit, the “Full Retirement Age” no longer describes the benefit structure; further increases in this benchmark simply reduce replacement rates for everyone. The final section presents a threefold conclusion. First, the shift to age 70 may be appropriate given the increase in life expectancy, health, and education for the majority of workers, but will lead to low replacement rates for the many workers who retire early. Second, further cuts in benefits by extending the Full Retirement Age will lead to very low benefits for early retirees. Third, policymakers need to inform those who can work that 70 is the new retirement age and devise ways to protect those who cannot work.