Implications of 70-year-old Retirement Threshold

The current electoral climate notwithstanding, the issue of the national budget deficit is always a hot topic on Capitol Hill. And when talk of the deficit comes up, the subject of Social Security is never far behind. In large part that’s because Social Security is, and for quite a while has been, on a path to insolvency – and no one can quite agree on the best way to fix it.

One suggestion that comes up time and time again is to raise the age of retirement to age 70, particularly for “younger” generations such as millennials. Currently, the age of “normal” retirement, meaning the age at which a person can expect 100% of their monthly social security benefits, is age 67 for those born in 1960 and later.

This age was raised from 65 to 67 in 1983, as part of legislation aimed to keep Social Security afloat when it seemed as though it would shortly run out of money to fund its then-current needs. Since then, the age for full retirement has stayed the same, even as average lifespan expectancy continues to inch slowly upward. Partly because of those longer lifespans, Social Security is again on the path to insolvency in less than two decades, when it is predicted to run out of enough money to fully fund the amount of benefits it anticipates will be claimed.

Raising the retirement age again seems to make sense, then, to many groups that advocate for it. After all, people are living longer. By putting off the age in which they receive funds, it also increases the years in which those very same people are paying funds into the program. That’s a win-win for Social Security itself, but not always for the people most desperately in need of the financial security net that the program was created to be.

For those that choose to opt into Social Security sooner than 67, benefits are available as young as 62 – but the early retirement comes with a slash in benefits. And data shows that certain demographics are more likely than others to need earlier retirement. Men more often opt for early retirement and early social security benefits, as do those with lower incomes. And it will come as no surprise that people who work in physically strenuous jobs retire at an earlier age than white collar workers.

However, being in a higher tax bracket and adding M.D. or Esq. after your name is far from a guarantee that you won’t come to rely on Social Security early. If only it were that easy or foolproof. Even with a college degree and an excellent job, many people find themselves blindsided by life and suddenly unable to work – plagued by misfortunes such as chronic health issues, natural disasters, caring for ailing parents or other family members, or even ageism in the workplace.

And many people with college degrees will still find themselves in physically demanding jobs where adding an extra three or more years to retirement age will be an undue hardship. Any career that keeps someone on their feet most of the day will add an incredible about of wear and tear on the body after a few decades – think nursing, for example.

Still, there are admitted benefits to working longer. Obviously, one benefit for those that can afford to work longer is that they have both more years in which to save toward retirement and also less need for retirement funds, since they spend less years in retirement. Assuming that someone plans to live to age 90 based on current life expectancy, retiring at age 70 instead of age 67 means having more working years to save and only 20 years, not 23 years, of expenses to plan for.

This calls for a smaller required nest egg, and might be especially important for those who got a late start toward saving money. Not only that, but people are typically able to put away more money per year toward retirement later in life, when the kids have left the house and the mortgage is paid off, than they are able to do during the early stages of their career, when salaries are lower and expenses are generally higher. So those extra three years of working at the end of a career might be worth significantly more toward a retirement fund, which in turn means greater security in retirement and more funds to spend doing what you love – such as traveling or hobbies.