Increasing social security full retirement age by two years to age 69 would reduce lifetime benefits and total program expenditures, but would not prevent Social Security’s projected 2034 insolvency.
Gradually raising the full retirement age to 69, compared to the current rule of 67 for those born in 1960 or later, would mean individuals would receive less money over their lifetime. Congressional Budget Office said in response to questions from Democratic Rep. Brendan Boyle released Wednesday.
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Under the “specified policy” calculated by the CBO, the earliest age at which someone could claim Social Security would remain 62, but the age at which someone could receive the maximum Social Security benefit would increase from 70 to 72.
The analysis comes as the social security system faces insolvency in less than a decade and countries like China have raised their retirement ages.
In a letter to Boyle, who represents Pennsylvania’s Second District and is the ranking member of the House Budget Committee, the CBO said that for workers born in 1965, the full retirement age would be 67 years and three months, and rising with an additional three months per year of birth until reaching age 69 for employees born in 1972 or later.
The CBO provided these examples of how the higher full retirement age would impact employee payouts. For workers born in 1972, filing for Social Security at the earliest possible age of 62 would reduce their benefits by 40%. Under current law, early claiming of benefits reduces by 30%.
Meanwhile, for people born in the 1970s – the first decade-long birth cohort in which all beneficiaries would be affected by the increase in the full retirement age – average retirement benefits for workers claiming benefits at age 65 would be 13% less than under current legislation. 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 of social security?
Raising the full retirement age would reduce Social Security spending, in terms of dollars spent and as a percentage of gross domestic product (GDP). That would reduce the program’s 75-year actuarial deficit, measured relative to GDP, by 24%, from 1.5% to 1%.
However, the CBO said that gradually raising the full retirement age would not change the forecast that the trust funds that support Social Security would be depleted by 2034.
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Henry Aaron, a senior fellow at the Brookings Institution’s economic studies program, said the change in the full retirement age would affect new Social Security beneficiaries, not existing beneficiaries. And new beneficiaries account for only about 5% of total spending – which isn’t enough to significantly help change the Social Security insolvency date.
In addition, the change in full retirement age would be phased in and the full impact of the change would not occur until the insolvency date had already occurred, said Richard Johnson, senior fellow and director of the retirement policy program at the Urban Institute. .