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Retirement Planning > Social Security

The Real Reason a Higher Retirement Age Won’t Fix Social Security

By John Manganaro

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What You Need to Know

  • A new paper warns that raising the retirement age would have little effect on getting people to work longer.
  • The primary reason is that many older Americans claim benefits as soon as possible.
  • The authors suggest a more holistic set of policy solutions would be a superior approach to raising the retirement age.

More than one-fifth of older workers in the United States start claiming Social Security benefits as soon as they are eligible, according to a new paper published by the Schwartz Center for Economic Policy Analysis at The New School, and this fact has big implications in the debate on how to “save” Social Security.

The new paper was penned by Teresa Ghilarducci, researcher and policy advocate at The New School, and Drystan Phillips, an aging and health policy researcher at the University of Southern California.

According to the duo, the results of their analysis challenge the widespread assumption that people claim their retirement benefits only when they retire, with more than 20% of older workers in the United States claiming Social Security benefits as soon as they are eligible — even while working for pay.

Specifically, lower-income older workers are more than three times as likely as high-income workers to claim early, indicating a reliance on Social Security payments to supplement low wages.

As the researchers emphasize, those who claim before the full retirement age receive reduced benefits throughout their lives, leaving them financially vulnerable once they stop working.

Ultimately, because so many older workers collect reduced Social Security benefits, the researchers find that raising the retirement age would have little effect on getting people to work longer and will simply reduce benefits further. Instead, Ghilarducci and Phillips argue, reforms should focus on policies like creating a bureau to support work at older ages, and bolstering Social Security benefits for those who risk falling into poverty in retirement.

Claiming Patterns of Older Workers

According to Ghilarducci and Phillips, among a cohort of individuals who were working at age 63 in 2010, 20% had already claimed Social Security retirement benefits. By 2012, when this cohort was 65, nearly 40% of those still working had already claimed. For reference, the normal retirement age for this cohort was 66.

Due to the design of Social Security, the paper explains, starting to claim benefits earlier than the full retirement age reduces monthly benefits for the rest of one’s life. For example, an individual with a normal retirement age of 66 with an expected monthly benefit of $1,000 would receive monthly payments of only $750 if they started claiming at 62.

As the researchers point out, the evidence is clear that low earners are most likely to claim early. To show this, they examine workers in 2018 who received Social Security benefits in the previous year at different ages and by their total income level, defining low income as income at or below $37,500, middle income as income greater than $37,500 and less than or equal to $70,000, and high income as greater than $70,000.

The duo finds that low-income workers at age 63 are more than three times as likely to have received Social Security retirement benefits in the prior year as high-income workers at the same age.

Notably, they do not presume that early claiming workers are making a mistake by reducing their lifelong Social Security monthly benefit because they claimed before age 70.

“Our previous research suggests that older workers who are struggling to maintain their standard of living have very limited financial wealth from which to draw on to supplement low wages, leaving them with no choice but to claim early if they want to stabilize their income,” the duo writes.

The Difficulty of Working Longer

The paper then turns to examining the working practices of older Americans, finding significant differences across groups with different levels of educational attainment.

According to the researchers, at all ages, individuals without a high school diploma are less likely to be employed than individuals with higher levels of education. Most notably, they find that individuals with graduate degrees are three times more likely to have a job than an adult without a high school degree, and those with advanced degrees are more than three times more likely to work at age 67.

Many individuals in their 50s with less educational attainment have unstable and precarious working conditions, poor health and caregiving responsibilities, according to the authors. They also commonly face age discrimination or difficult local labor markets.

“Most Social Security financing proposals [that] focus on raising the normal retirement age cite increased average life expectancy between the 1980s and 2010s as the prime motivation,” the paper explains. “However, these gains were not experienced evenly by all groups.”

While high-income individuals saw large increases in their life expectancy over this period, poorer individuals saw almost no gains, and life expectancy gaps have also been growing when measured by education disparities. Meanwhile, evidence suggests that individuals stop working in line with their differing life expectancy.

“As changing the normal retirement age will not change life expectancy, we expect that most workers will stop working primarily as a function of their health, caregiving responsibilities and the quality and availability of jobs,” the paper suggests. “What’s more, since 2019 life expectancy in the United States has started declining, suggesting that older workers are less likely to be able to work until later ages.”

Supporting Older Workers

Taking these challenges into consideration, the authors argue that any reforms to federal retirement policy — while necessary and long overdue — should be built on the foundation of supporting good quality jobs for older workers and protecting and strengthening the Social Security system, not on reducing benefits by increasing the retirement age.

“Our findings are relevant for the debate about raising the Social Security normal retirement age to 68 and beyond,” they write. “Raising the NRA will not change life expectancy or make it more equally distributed, and it is unlikely to reduce the level of early claiming or increase people’s odds of working longer, especially for workers with low income and less education.”

Instead, Ghilarducci and Phillips argue, raising the normal retirement age will disproportionately disadvantage poor workers by increasing the penalty for early claiming and reducing their lifetime Social Security benefits.

The pair suggests a number of alternative avenues for reforms and policy changes that, they argue, could help to bolster the financial standing of Social Security without putting an undue burden on the most vulnerable.

One idea they share is the creation of a federal bureau within the Labor Department, to be tasked with three primary functions: identify and analyze issues of concern for older workers, devise innovative policies to address these issues and engage in outreach and education.

By identifying policies that would ensure the availability of age-accommodating jobs with sufficient rewards for older workers, the paper suggests, this bureau would increase the number of older workers by encouraging and rewarding work. Better jobs for older workers with sufficient pay would allow individuals to work longer without needing to claim Social Security benefits early to supplement low wages.

Other ideas in the paper include improving health and safety standards and providing paid sick leave and time off to make the workplace better for all workers.

Minimum Benefit

Ghilarducci and Phillips also argue that the current funding formula for the Social Security special minimum benefit is obsolete.

The minimum benefit level should be set to ensure an income floor above the poverty level for an individual, they suggest, noting that increasing benefit levels will expand eligibility to a broader population of workers who have low earnings over the course of their careers and whose regular retirement benefits are insufficient to keep them out of poverty.

Photo: Shutterstock

John Manganaro

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