I have a short piece in the New York Times about those who draw Social Security benefits before the “normal” retirement age–traditionally age 65, raised in 1983 to 66 this year, and rising to 67. However, in the early 1960s Congress allowed people to begin drawing lower benefits as early as age 62. These days, two thirds or more of those on Social Security begin drawing benefits well before the normal retirement age.
The point of my article is that raising the normal retirement age is no panacea for Social Security’s financial problems. In fact, it really makes no difference when people retire because benefits are actuarially adjusted so that theoretically everyone gets the same lifetime benefits. Indeed, benefits continue to rise 8% per year past the normal retirement age because of something called the delayed retirement credit. Therefore, if the goal is to improve Social Security’s finances, raising the normal retirement age won’t do much good because 62 has become the de facto normal retirement age. We will have to raise the early retirement age if we want to save money this way.
There are two other points I didn’t have space to make that are important. First, I think many people who take early retirement foolishly have a use-it-or-lose-it attitude; they don’t realize that benefits rise the longer one waits. I think many also believe that their benefits will be bumped up when they reach the normal retirement age. But the lower benefits one gets when taking early retirement are for life. Consequently, I fear a crisis of poverty among the very old in the not too distant future.
Second, there is an important cost associated with early retirement in the form of restrictions on earned income. Social Security benefits are reduced $1 for every $2 earned above $14,160. That’s like a 50% tax that discourages people from working once they have decided to take early retirement. I think this also contributes to poverty among the elderly. The earnings test was abolished a few years ago for those above the normal retirement age. But as the normal retirement age rises, it impacts more and more people.
In short, any debate over raising the age to qualify for Social Security must include discussion of raising the early retirement age. Personally, I think 62 is too early for anyone in good health to retire.