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, also called the normal retirement age—depends on their year of birth. For workers born before 1938, the full retirement age was 65. It increased in two-month increments until it reached 66 for workers born in 1943. For workers born between 1944 and 1954, the full retirement age holds at 66, but it then increases again in two-month increments until reaching 67 for workers born in 1960 or later. As a result, workers who turn 62 in 2022 or later will be subject to a full retirement age of 67. Workers will continue to be able to receive benefits at age 62, but at that age, the amount of benefits will be smaller than the amount they would receive by waiting until the full retirement age to claim benefits.

Under this option, the full retirement age would increase to 67 more quickly and would then increase further. Specifically, the full retirement age would increase in two-month increments for six years, rising to 66 years and 2 months for workers born in 1953 (who turn 62 in 2015) and reaching 67 for workers born in 1958 (who turn 62 in 2020). Thereafter, it would continue to increase by two months per year until reaching 70 for workers born in 1976 or later (who turn 62 in 2038 or later). As under current law, workers could still choose to begin receiving reduced benefits at 62, but the reductions would be larger. The benefits for workers who qualify for disability insurance would not be reduced under this option.

This approach would reduce lifetime Social Security benefits. Depending on the age at which a worker claims benefits, a one-year increase in the full retirement age is equivalent to a reduction in the monthly benefit of between 5 percent and 8 percent. Workers could maintain the same monthly benefit by claiming benefits at a later age, but then they would receive benefits for fewer years. Because many workers retire at the full retirement age, increasing that age is likely to result in beneficiaries’ remaining employed longer and claiming Social Security benefits later than they would if a policy with identical benefits at each age was implemented through adjustments in the benefit formula. The additional work would increase total output and boost federal revenues from income and payroll taxes. It would also 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.

This option would shrink federal outlays by $58 billion from 2015 through 2023, the Congressional Budget Office estimates. By 2038, the option would reduce Social Security outlays relative to what would occur under current law by 6 percent; when measured as a percentage of total economic output, the reduction would be 0.4 percentage points, as outlays would fall from 6.2 percent to 5.9 percent of gross domestic product.

A rationale for this option is that people who turn 65 today will, on average, collect Social Security benefits for significantly longer than retirees did in the past, and the average life span in the United States is expected to continue to lengthen. In 1940, life expectancy at age 65 was 11.9 years for men and 13.4 years for women. Life expectancy has risen by more than five years for 65-year-olds, to 17.9 years for men and 20.2 years for women, and CBO projects that by 2038, those figures will increase to 20.2 years and 22.5 years, respectively. Therefore, a commitment to provide retired workers with a certain monthly benefit beginning at age 65 in 2038 will be significantly more costly than is that same commitment made to today’s recipients.

A disadvantage of this option, like any proposal to reduce retirement benefits but not disability benefits, is that it would increase the incentive for older workers nearing retirement to apply for disability benefits. Under current law, workers who retire at age 62 in 2038 will receive 70 percent of their primary insurance amount (what they would have received if they had claimed benefits at their full retirement age); if they qualify for disability benefits, however, they will receive 100 percent of that amount. Under this option, workers who retired at 62 in 2038 would receive only 55 percent of their primary insurance amount; they would still receive 100 percent if they qualified for disability benefits. (The estimates of the budgetary effects of this option account for the effect on the Social Security Disability Insurance program.) To eliminate that added incentive to apply for disability benefits, policymakers could narrow the difference by also reducing scheduled disability payments. For example, disability benefits could be reduced for people age 53 or older, or eligibility for disability benefits could be limited to people younger than 62 (as discussed in detail in the first related publication cited below). However, that additional change would adversely affect people who would no longer qualify for disability benefits.

Some proposals to increase the full retirement age would also increase the early eligibility age, when participants may first claim retirement benefits, from 62. Increasing only the full retirement age 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 full retirement age by delaying the age at which they claimed benefits. Increasing the early eligibility age along with the full retirement age would make some people wait longer to receive retirement benefits, so their average monthly payments would be higher; that outcome would help people who lived a long time. However, for people who would depend on benefits at age 62, increasing the early eligibility age could cause financial hardship, even if, over their lifetime, the total value of benefits would be generally unchanged. Increasing the early eligibility age together with the full retirement age would cause federal spending to be somewhat lower in the first few decades of the policy and higher in later decades than if only the full retirement age was increased.