As Social Security's full retirement age moves to 67, some experts say it should not go higher
- Politicians on both sides of the aisle promised not to cut Social Security and Medicare at this month's State of the Union address.
- But one idea that has been floated, raising the full retirement age, would be a reduction in benefits, according to experts.
- "They are proposing a 40-year-old plan that doesn't work for this economy," a labor economist says.
More than 1 million people recently took to the streets in France to protest an increase in the country's standard retirement age.
In the United States, a similar battle might be quietly brewing in Washington.
The full retirement age for Social Security, when workers are eligible for 100% of the benefits they've earned, is transitioning to 67. Eligibility for health care coverage under Medicare currently starts at age 65.
Yet as both programs face funding shortfalls, one Republican proposal has suggested pushing those ages higher.
The Republican Study Committee budget, put forward by House leaders, has called for Social Security's full retirement age to gradually go up until it is increased by three years. Based on their proposal, people born in 1978 or later would have a full retirement age of 70.
The proposed changes would not apply to current Social Security beneficiaries or people ages 55 and over, according to the plan that was proposed last year.
The Republicans also propose raising Medicare's eligibility age to coincide with the Social Security full retirement age and then indexing that age to life expectancy.
At the State of the Union address last week, President Joe Biden called on Democrats and Republicans to stand to show Americans they will not cut Social Security or Medicare.
Despite the moment of unanimity, experts say Republicans' proposal represents cuts.
"Social Security is a very simple problem: It's money coming in and money going out in benefits," said Alicia Munnell, director of the Center for Retirement Research at Boston College.
"There's two ways to fix it: You can have less money go out or more money come in," Munnell said.
Importantly, there is no third way to do this, Munnell said, as some have suggested with raising the retirement age.
"Increasing the retirement age is a benefit cut," Munnell said.
Higher retirement age 'doesn't work for this economy'
Social Security amendments signed in 1983 ushered in today's phased transition to a full retirement age of 67.
The initial eligibility age for retirement benefits is still age 62. However, as the full retirement age goes up, those who claim Social Security at that earliest age face greater benefit reductions.
The 1983 legislation prompted other notable changes, such as making a portion of benefits subject to income taxes, as well as providing delayed retirement credits of 8% per year for those who wait to claim after full retirement age up to age 70.
The 1983 changes came as the program was facing insolvency. Today, the program faces a similar dilemma. Just 80% of benefits will be payable from the combined trust funds in 2035, unless changes are made sooner, according to projections from the Social Security Administration.
That has led to suggestions of raising the retirement age again.
More from Personal Finance:
State of the Union inspires brief unanimity on Social Security
Biden calls on Congress to crack down on 'junk fees'
Amid inflation, shoppers turn to dollar stores for groceries
But raising the retirement age the first time was a "big failure," said Teresa Ghilarducci, a labor economist and professor at The New School.
In 1983, the adoption of 401(k) plans had just started, and there was hope that those accounts could replace defined benefit plans and support the half of the workforce not covered by a retirement plan.
"That experiment was a big failure," Ghilarducci said. "And that hope was misplaced."
Today, the number of workers who lack access to a work retirement savings plan is still stubbornly high.
Unlike in 1983, when senior poverty rates were declining, they are now increasing, Ghilarducci noted.
"They are proposing a 40-year-old plan that doesn't work for this economy," Ghilarducci said.
The myth of working longer
The expectation 40 years ago was that people would live longer and be healthier, giving them the ability to choose to work longer.
Certain developments, particularly the elimination of mandatory retirement ages and creation of new anti-age discrimination rules, contributed to that outlook, Ghilarducci noted.
However, data now shows not everyone has the privilege of working longer.
College-educated white workers can probably work until they are 70, according to Munnell. But other groups do not have the same luxury.
"Lower-education groups and racial minorities just do not have that many healthy years of life expectancy that they could do it," Munnell said. "So it's really discriminatory."
Raising the retirement age again may only exacerbate those differences. "I think that's about as far as you can go," Munnell said of the full retirement age that is getting phased in now, at 67.
There is another reason why raising the retirement age again would not work – living longer and being able to work longer are not the same things, Ghilarducci said.
Evidence shows an increasing retirement age hasn't necessarily changed when people claim Social Security benefits.
"Most people who claim Social Security early are actually still in the labor market," Ghilarducci said. "But they're claiming Social Security early at a really low rate in order to supplement low wages."
This becomes a problem when they are no longer working and their benefit check is not enough to cover their needs.
"That may explain a reason why elderly poverty rates are going up, because most people depend on Social Security for most of their retirement income," Ghilarducci said.