Raising Social Security’s full retirement age by two years to age 69 would decrease individuals’ lifetime benefits and overall spending by the program, but would not stave off Social Security’s expected insolvency in 2034.
Gradually raising the full retirement age to 69 years old, up from the current rule of 67 for those born in 1960 or later, would mean that individuals would get less money over their lifetime, the Congressional Budget Office said in a response to queries by Democratic Rep. Brendan Boyle released Wednesday.
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Under the “specified policy” calculated by the CBO, the earliest age at which a person can claim Social Security would remain 62, but the age at which a person could get the maximum Social Security payout would increase to 72, up from 70 currently.
The analysis comes as Social Security faces insolvency in less than a decade and countries such as China have raised their retirement age.
In a letter to Boyle, who represents Pennsylvania’s 2nd District and is the ranking member of the House committee on the budget, the CBO said that for workers born in 1965, the full retirement age would be 67 years and three months, and would increase by an additional three months per birth year until it reached age 69 for workers born in 1972 or later.
The CBO gave these examples of how the higher full retirement age would affect workers’ payouts. For workers born in 1972, claiming Social Security at the earliest possible age of 62 would reduce their benefits by 40%. Under the current law, claiming early reduces benefits by 30%.
Meanwhile, for people born in the 1970s — the first 10-year birth cohort in which all beneficiaries would be affected by the increase in the full retirement age — the average retirement benefits for workers who claimed benefits at age 65 would be 13% less than under current law. The decline in benefits for those born in the 1980s would be similar to that for the 1970s cohort, the CBO said.
What does this mean for the big picture for Social Security?
The increase in the full retirement age would reduce spending for Social Security, in terms of dollars spent and as a percentage of gross domestic product (GDP). That would reduce the 75-year actuarial deficit of the program measured in relation to GDP by 24%, from 1.5.% to 1%.
However, the CBO said gradually raising the full retirement age would not change the projection that the trust funds that back Social Security would be exhausted in 2034.
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Henry Aaron, senior fellow in the economics studies program at the Brookings Institution, said the change in the full retirement age would affect new Social Security beneficiaries, not existing beneficiaries. And new beneficiaries account for just about 5% of total spending — which is not enough to significantly help change the insolvency date for Social Security.
Also, the change in the full retirement age would be gradually phased in and the full impact of the change wouldn’t occur until the insolvency date already occurred, said Richard Johnson, senior fellow and director of the program on retirement policy at the Urban Institute.
