united states project

What a higher Retirement Age really means

A Social Security mini-primer
September 13, 2012

The idea of raising the age at which workers can collect benefits from Social Security is very much in play.

Mitt Romney told the Detroit Economic Club in February that he will “slowly raise the retirement age” for Social Security. The president, meanwhile, declared in his acceptance speech last week that he is still eager to reach an agreement on the principles laid out by his deficit commission, aka the Simpson-Bowles Commission. And in its final report, the co-chairs of the commission, Alan Simpson and Erskine Bowles, recommended gradually increasing the age from 67 (for those born after 1959) to 69. Because they propose linking the retirement age to gains in longevity, it could go even higher. Along with that rise would also come a change in the early retirement age—from 62 to 64, or higher.

To promote an honest debate about such a change means that journalists must help citizens understand what it entails, which is a lot tougher than it first sounds.

Moving up the age for collecting benefits may sound easier to swallow than some other proposed changes for Social Security, like cutting cost of living hikes for all beneficiaries. On the surface it seems to make certain sense, since people, on average, are living longer (although, in truth, longevity gains have mostly benefited white men; for women of color with low incomes, for example, average life expectancies have declined since the 1980s).

But what is not well understood is that raising the retirement age results in a benefit cut. A law passed in 1983 raised the age from 65 to 66 now and eventually to 67. That change will result in an average cut of about 13 percent for retirees. As the accompanying chart shows, raising the statutory retirement age to 69 would result in a another cut of around 13 percent. That’s a very large cut.

Explaining how raising the retirement age equates to a benefit cut is tricky, as The Associated Press discovered a few weeks ago when it reported on its own survey about preferences in dealing with the financial problems of Social Security, under, at one outlet, the headline, “Narrow majority supports raising taxes, retirement age, to save Social Security.” Most Americans, according to the AP survey, said raising taxes and raising the retirement age were preferable to “cutting monthly benefits.” The AP made that point in its lede, giving readers a clear impression that increasing the retirement age was not a cut. But it is.

Sign up for CJR's daily email

The AP gave the same false impression in one of its survey questions. In our CJR Dart to the AP the other day, we reported that raising the age and cutting benefits across the board are mathematically indistinguishable from one another.

In responding to our post, reporter Stephen Olemacher, who wrote the story, pointed out that the AP did tell readers—toward the end of its piece—that “raising the retirement age is a benefit cut for future generations, because they would have to wait longer to qualify for full benefits.” But that statement confuses rather than clarifies. And in an emailed comment, Olemacher argued, incorrectly, that “raising the retirement age does not by itself result in lower monthly benefits.”

We went back to Nancy Altman, a respected Social Security expert who co-directs the advocacy group Social Security Works, and asked her why raising the age is a benefit cut. Contrary to what the AP reported, she said, “with all due respect to Mr. Olemacher, raising the age does result in ‘lower monthly benefits’ than one would receive under current law.” The chart Altman prepared, below, shows how much of a benefit reduction people retiring at different ages would experience.

Click on image for larger version.

It’s important for people to understand that workers have an option to claim benefits, starting at age 62 or at a later age of their choosing. It is best to think about Social Security benefits in terms of a range of ages when you can collect them. If you claim benefits before what Congress defines as the “Retirement Age,” your monthly benefits are reduced. If you claim them after you reach the statutory age, they will be higher.

In calculating your benefit, the Social Security Administration figures your monthly earnings over your working years, indexed to average wages. That number is plugged into a benefits formula to arrive at your Primary Insurance Amount, or PIA for short. Social Security’s next step is to look at your birthday and make an actuarial adjustment for your age. The size of the adjustment depends on where Congress sets the statutory Retirement Age.

If Congress sets the Retirement Age at 67, which is currently the case for those born after 1959, the adjustment will result in less of a reduction than someone will experience if it is set at 69. Likewise, a statutory age of 67, will give retirees more of an increase than they would receive if the age were set at 69.

In other words, it’s the actuarial alchemy that results in the cut as you increase the Retirement Age. Here’s what it means in terms of the numbers: If workers retired at 62 when the retirement age was 65, they would have had their PIA reduced by 20 percent. With 67 as the statutory definition of Retirement Age, those claiming benefits at 62 will find their PIA reduced by 30 percent. If the retirement age were ultimately raised to 69, Altman says the PIA for those claiming benefits at 62 would be reduced by 39 percent.

Similarly, if workers claimed benefits at age 70 when the Retirement Age was defined at 65, their PIA would have been increased by 40 percent. With the Retirement Age defined at 67, workers claiming benefits at age 70 will find their PIA increased by only 24 percent. And with a Retirement Age of 69, workers waiting that long to claim benefits would get an increase in their PIA of only eight percent.

“Without understanding the intricacies of how benefits are calculated, it’s not surprising that people don’t see that raising Social Security’s Retirement Age is an across-the-board benefit cut,” Altman says. “But is is.”

We hope our chart here helps. This is complicated stuff, and perhaps not a lot of fun to write about. But if we are serious about helping the public understand the choices between possible changes to Social Security as part of a grand bargain on deficit reduction, we have to hunker down and get it right.

Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for CJR's Covering the Health Care Fight. She also blogs for Health News Review and the Center for Health Journalism. Follow her on Twitter @Trudy_Lieberman.