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May 31, 2016

The Push for Later Social Security Retirement Ignores Seniors' Financial Needs

 

Some want to push back Social Security’s full retirement age, which means that more people would have to wait longer to get their full Social Security benefits. The problem with that proposal is that the large majority of seniors sign up for Social Security benefits early—because they need the money. 

For decades Social Security’s full retirement age was 65. In 1983 Congress changed it to age 67 for those born in 1960 or later, gradually phasing in the age increase. 

The change seemed demographically reasonable. On average, Americans live much longer now than they did in 1935 when Congress created Social Security. And those demographic changes continue. 

Now some policymakers—mostly Republicans—are again calling attention to those demographic changes and proposing to push back the full retirement age even further—usually recommending age 70. Many Democrats, by contrast, want to expand Social Security. 

Here’s the problem with a later retirement date: The large majority of seniors actually take Social Security early, before their full retirement age. 

According to a recent assessment by U.S. News, 48 percent of women and 42 percent of men sign up for Social Security benefits at age 62, the first year people are allowed to start drawing benefits. At that age, benefits are about 25 percent less than if seniors waited until their full retirement age. 

Another 7 percent to 8 percent sign up at age 63, ditto for age 64. 

And now that the retirement age has increased to 66, on its way to 67, those who sign up at age 65 are actually signing up early. 

Thus, somewhere between 65 percent and 70 percent of seniors start drawing their retirement benefits before their full retirement age. And while that number is down from nearly 80 percent in the 1990s, it’s still a huge percentage. 

The point is that while delaying Social Security’s full retirement age until, say, 70 may comport with demographic trends, it contradicts financial trends. As modest as Social Security payments are, millions of seniors need that money to live on. 

The best solution to this problem is to transition to a system of personal retirement accounts. Properly structured, the vast majority of Americans would approach their retirement years with significant assets—assets that belong to them, not the government. 

And when people own their own retirement assets, who cares when, or whether, they retire?


 

  • TaxBytes-New

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