Raise the Full Retirement Age for Social Security

The age at which workers become eligible for full retirement benefits from Social Security—the full retirement age (FRA), also called the normal retirement age—depends on their year of birth. For workers born in 1937 or earlier, the FRA was 65. It increased in two-month increments for each successive birth year until it reached 66 for workers born in 1943. For workers born between 1944 and 1954, the FRA holds at 66, but it then increases again in two-month increments until it reaches age 67 for workers born in 1960 or later. As a result, workers who turn 62 in 2022 or later will be subject to an FRA of 67. The earliest age at which workers may start to receive reduced retirement benefits will remain 62; however, benefit reductions at that age will be larger for workers whose FRA is higher. For example, workers born in 1954 (whose FRA is 66) will receive a permanent 25 percent reduction in their monthly benefit amount if they claim benefits at age 62 rather than at the FRA, whereas workers born in 1960 (whose FRA is 67) will receive a 30 percent benefit reduction if they claim benefits at 62.

Under this option, the FRA would continue to increase from age 67 by two months per birth year, beginning with workers turning 62 in 2023, until it reaches age 70 for workers born in 1978 or later (who turn 62 beginning in 2040). As under current law, workers could still choose to begin receiving reduced benefits at age 62, but the reductions in their initial monthly benefit from the amounts received at the FRA would be larger, reaching 45 percent when the FRA is 70. This option would not reduce the benefits for workers who qualify for Social Security Disability Insurance (DI) .

An increase in the FRA would reduce lifetime benefits for every affected Social Security recipient, regardless of the age at which a person claims benefits. A one-year increase in the FRA is equivalent to a reduction of about 6 percent to 8 percent in the monthly benefit, depending on the age at which a recipient chooses to claim benefits. Workers could maintain the same monthly benefit by claiming benefits at a later age, but then they would receive benefits for fewer years.

This option would shrink federal outlays by $8 billion through 2026, the Congressional Budget Office estimates. By 2046, the option would reduce Social Security outlays from what would occur under current law by 7 percent; when measured as a percentage of total economic output, the reduction would be 0.5 percentage points, because outlays would fall from 6.3 percent to 5.8 percent of gross domestic product.

Because many workers retire at the FRA, increasing that age is likely to result in beneficiaries’ working longer and claiming Social Security benefits later than they would if a policy with identical benefit cuts at each age was implemented by adjusting the benefit formula. Any additional work would increase total output and boost federal revenues from income and payroll taxes. It also would result in higher future Social Security benefits, although the increase in benefits would be smaller than the increase in revenues. The estimates shown here for this option over the next decade do not include those effects of additional work.

A rationale for this option is that people who turn 65 today will, on average, live significantly longer and collect Social Security benefits for more years than retirees did in the past, increasing average lifetime Social Security benefits. In 1940, life expectancy at age 65 was 11.9 years for men and 13.4 years for women. Since that time, life expectancy has risen by more than six years for 65-year-olds, to 18.1 years for men and 20.6 years for women. Therefore, a commitment to provide retired workers with a certain monthly benefit beginning at age 65 today is significantly costlier than that same commitment made to recipients in 1940.

A disadvantage of this option is that it would increase the incentive for older workers nearing retirement to stop working and apply for DI benefits. Under current law, workers who retire at age 62 in 2046 will receive 70 percent of their primary insurance amount (what they would have received had they claimed benefits at their FRA); if they qualify for DI benefits, however, they will receive the full amount. Under this option, workers who retired at 62 in 2046 would receive only 55 percent of their primary insurance amount; they would still receive 100 percent if they qualified for DI benefits. (The estimates of how this option affects the budget account for the higher resulting applications and awards for the DI program.) To eliminate that added incentive to apply for disability benefits, policymakers could narrow the difference by also reducing scheduled disability payments.

Some proposals to raise the FRA also would increase the early eligibility age (EEA)—when participants may first claim retirement benefits—from 62. Increasing only the FRA would reduce monthly benefit amounts and would increase the risk of poverty at older ages for people who did not respond to the increase in the FRA by delaying the age at which they claimed benefits. Increasing the EEA along with the FRA would make many people wait longer to receive retirement benefits, so their average monthly payments would be higher than if only the FRA was increased; higher benefits would help people who lived a long time. However, for people who would depend on retirement benefits at age 62, increasing the EEA could cause financial hardship, even if the total lifetime value of benefits would be generally unchanged. Increasing the EEA together with the FRA would cause federal spending to be lower in the first few decades of the policy and higher in later decades than if only the FRA was increased.