Retirement benefits are one of the most important federal programs for more than 64 million retirees in the United States. Without these monthly payments, many of them would not be able to meet their daily needs as they age.
Thus, when politicians or the Social Security Administration discuss raising the retirement age, seniors interpret that this will inevitably lead to a reduction in benefits.Change in retirement age will change pensions in the future
Recent reports indicate that major changes are on the horizon as a new retirement age is expected to be implemented in the country. If you are entitled to these benefits or are considering retiring soon, it is critical that you educate yourself about this change and how it could affect your current and future payments.
New Social Security retirement age
According to Social Security experts, raising the retirement age to 70 is a necessary measure to reduce the risk of people exhausting their savings during old age.
Rachel Greszler argues that this proposal is based on the Social Security Administration (SSA) Trustees’ 2023 Report, released earlier this year. That report warns that if Congress does not act to ensure the solvency of the trust funds that support the major retirement, survivor and disability programs, they will be exhausted by 2035. To meet Social Security’s original goal, policymakers should gradually raise the retirement age from the current 67 to 69 or 70, increasing by one or two months each year and adjusting it for life expectancy.
Greszler also notes that factors such as the shift away from physically demanding jobs, increased life expectancy and advances in medical care have allowed older Americans to continue working longer, which would help mitigate the projected shortfall in Social Security.
In addition to ensuring the financial stability of the system and providing additional income to workers, keeping seniors active offers other benefits. The wisdom and experience of these employees can provide valuable guidance to younger staff. Also, in today’s labor market, older workers have more opportunities to make a gradual transition to retirement, rather than retiring abruptly.
How the new retirement age will affect Social Security benefits
Retirement benefits can be complicated, as one of the requirements for eligibility is to have worked at least 35 years and paid a special Social Security tax.
Many retirees are unaware that the funds they will receive upon retirement come not from their own savings, but from current taxes. The Social Security Administration calculates an index for each of the 35 years corresponding to a person’s best earnings. In other words, it takes the annual earnings for that period and compares them to the average earnings at the time, adjusting the value to reflect a constant average salary today.
Then, an average is calculated based on the 35 best years of earnings, and if there are fewer than 35 years of earnings, they are supplemented by years with no earnings.
Change in retirement age will change pensions in the future
The year of birth determines when the right to retirement with full benefits is acquired. For those born in 1960 or later, the full retirement age is 67, while for those born in 1955 it is 66 years and two months.
This reflects that age is a key factor in determining eligibility for benefits. Although it is possible to start receiving benefits at age 62, doing so before full retirement age (FRA) implies a reduction. This reduction is 5/9 of 1% (approximately 0.556%) for each month up to 36 months before FRA, and then is reduced by 5/12 of 1% (or 0.417%) for each additional month.
On the other hand, the monthly amount increases if you decide to wait until age 70 to retire. If the government decides to increase the FRA, the monthly payments would be lower because the benefit graph would shift, delaying the time at which 100% of the Personal Adjustment Index (PIA) is reached. If the retirement age were raised to 70, the relative reduction in benefits would be approximately 23%.
