Next Change in Full Retirement Age – Social Security Payment Will Change Too

The recent proposal to raise the full retirement age (FRA) in the United States has sparked substantial debate, with many questioning the financial and social impacts on Social Security beneficiaries. Congressman Brendan Boyle recently requested that the Congressional Budget Office (CBO) analyze how a potential increase in the FRA from 67 to 69 would affect different groups of beneficiaries, especially considering factors like gender, income level, and birth decade. Here, we delve into the key findings from the CBO’s report, exploring the projected effects on Social Security benefits and the broader program implications.

Potential Changes in Social Security Full Retirement Age Requirements

The proposed increase in the FRA would reduce the overall lifetime benefits for all Social Security beneficiaries. Under the proposal, if individuals delayed receiving their benefits in alignment with the new FRA, they would collect the same monthly payment, but for a shorter period. Conversely, if individuals began claiming benefits at the same age as they would under the current system, they would face a reduction in monthly payments over the same span of years.

This adjustment is projected to improve Social Security’s financial standing by reducing overall benefit payouts. The CBO’s estimates assume that Social Security will continue operating under current funding laws, regardless of the long-term health of the program’s trust funds. However, the CBO projects that the combined trust funds could reach a zero balance by 2034. Without additional funding, Social Security may need to reduce benefits after that point.

Phase-In Timeline for the New Full Retirement Age

Under the current framework, the FRA for individuals born in 1965 will rise to 67 years and 3 months, increasing incrementally by three months each year until it reaches 69 for those born in 1972 or later. The earliest age to claim retirement benefits will remain at 62, but claiming before the FRA would result in a larger monthly reduction in benefits under the proposed policy than under current law.

This adjustment means that, if the FRA is raised to 69, individuals claiming at 62 would see a 40% reduction in monthly benefits compared to their primary insurance amount (PIA). This is higher than the current 30% reduction for those with an FRA of 67. However, beneficiaries who wait to claim until after their FRA would continue to see an increase in monthly payments up until age 72, allowing for larger payments for those who delay retirement.

Effects on Monthly Benefits for Early Claimers

The proposed changes would significantly impact those choosing to retire early. Here’s a breakdown of the projected reductions:

Claiming Age	FRA 67 (Current Law)	FRA 69 (Proposed)
Age 62	30% reduction	40% reduction
Age 65	~15% reduction	~25% reduction

These reductions would be calculated based on the PIA, which is the benefit amount an individual would receive if they claimed at their FRA. The higher the FRA, the larger the reduction for early claimers, which could make early retirement less financially viable for many.

Impact of FRA Increase on Social Security Benefits by Group

The CBO’s analysis shows that the impact of an FRA increase varies depending on gender, income, and birth decade. To evaluate these impacts, the CBO compared the average lifetime Social Security benefits and average annual benefits if individuals claimed at age 65, looking at key demographics:

1. Gender: Women, who typically have longer life expectancies than men, could see a more pronounced reduction in lifetime benefits due to the extended FRA.
2. Income Level: Lower-income individuals may face a greater financial impact, as they are more likely to rely on Social Security as a primary income source during retirement.
3. Birth Decade: Younger generations (particularly those born in 1972 or later) would face the full effect of the FRA increase, impacting their retirement planning and potentially leading to delays in retirement for financial reasons.

Projected Impact on Disability Insurance (DI)

While raising the FRA would primarily affect retirement benefits, the change could also lead to a slight increase in spending on Disability Insurance (DI). Some individuals, particularly those in physically demanding jobs, may turn to DI if they are unable to work until the later retirement age. However, the increase would have no direct impact on Social Security benefits for those who qualify based on disability, as these are governed by different eligibility criteria.

The proposed increase in the FRA reflects the need to address Social Security’s funding shortfall but would come with notable impacts for retirees. For those born in the later decades affected by the change, this could mean a need for more comprehensive financial planning to ensure a stable retirement income. Beneficiaries may need to consider delaying retirement, saving more aggressively, or supplementing their Social Security benefits with other income sources.