Social Security's real retirement age is 70

Retirees get 'full benefits' at 66, but Alicia Munnell argues that more people should rethink their retirement timing.

Social Security’s real retirement age is 70

October 23, 2013, 10:35 AM

By Alicia H. Munnell

Social Security’s retirement age is 70.  The simple fact is that monthly benefits are highest at age 70 and are reduced actuarially for each year they are claimed before age 70.  This is a relatively new development, which may explain why Social Security’s retirement age is the best-kept secret in town.  But I think it’s time we told folks.   And then we need to clarify what all this talk about raising the so-called full retirement age really means. (These issues are covered in more detail in  a new issue brief from the Center for Retirement Research.)

Currently workers can claim their benefits at any time between 62 and 70.  But benefits claimed before age 70 are actuarially reduced.  That is, benefits claimed at younger ages are lower by an amount that compensates for the fact that they start earlier and will be paid for more years.  The goal is to ensure that, based on average life expectancy, people who take a lower benefit early would expect to receive about the same total amount in benefits over their lifetimes as those who wait for higher monthly benefits but start receiving them later.  In other words, the claiming age affects monthly benefits but, on average, does not alter total benefits paid over the lifetime.
So, we have a benefit structure that pays full benefits at an age when most people have stopped working.  We have set that age at 70.  If you claim after 70, lifetime benefits decline, because monthly benefits are not increased for claiming after 70.  If you claim before 70, your monthly benefit is significantly lower.
Most people don’t understand how much claiming early reduces monthly benefits.  As the example in the table above shows, claiming at 62 instead of 70 cuts the monthly benefit almost in half, from $1,000 to $568.   Given that Social Security is a particularly valuable type of income – inflation-adjusted and lasting for as long as you live – it generally makes sense to postpone claiming as long as possible to get the highest monthly amount, assuming you are in good health for your age.
If 70 is the age at which Social Security expects most people to retire and at which it pays the highest benefit, what is all this talk about the full retirement age?
Social Security’s full retirement age used to be a meaningful concept.  Before 1972, maximum monthly Social Security benefits were paid at 65, and monthly benefits were not increased for claiming later.  In 1972, Congress introduced a Delayed Retirement Credit, which increased benefits by 1% of the full retirement age benefit for each year of delay.  The result was that those who retired later got a little bonus for delaying.  But a 1% credit did not come close to compensating for the fact that late claimers had to wait and would get benefits over fewer years.  In 1983, the adjustment was raised to 3% and that percentage was increased gradually to 8% in 2008.  At this point, the adjustment provided by the Delayed Retirement Credit is actuarially fair – that is, it keeps lifetime benefits constant for those who claim after the full retirement age.  In doing so, the Delayed Retirement Credit has rendered the full retirement age a largely meaningless concept.  It does not describe the age when benefits are first available.  That is age 62.  It does not describe the age when monthly benefits are at their maximum.  That is age 70.  It really does not have any meaning in terms of an official retirement age.
This story does not completely wash because a number of specific Social Security provisions are linked to the full retirement age.  An earnings test applies before age 66 (the current full retirement age) but not thereafter.  Widow and spousal benefits are reduced if claimed before the full retirement age and not thereafter.  Workers can claim spousal benefits after their full retirement age and then subsequently claim their own benefits.
But all these provisions are relatively small and do not undermine the basic fact that 70 is the age for full monthly benefits under Social Security.  So then, what does it mean that the full retirement age has moved from 65 to 66 and is scheduled to move to 67 for workers born in 1960 or later?  And what does it mean to increase the full retirement age beyond the 67 threshold already scheduled under current law?  A topic for next time.

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Social Security's real retirement age is 70

I chose to claim benefits at age 62 for a variety of reasons. The primary one was that I could get benefits for my daughter's college education. Also, most of my benefits now go to Medi-care which because of my income level I pay double for monthly. So, now I collect almost nothing for myself. But also, as a young man starting businesses I never expected Social Security to be here. It wasn't logical to me business wise that Social Security would even exist now in any form. So, I never paid myself a salary. So, since I only operated my businesses on a capital gains or capital loss basis I didn't pay social security because you only pay that if you pay yourself a regular salary. So, trying to figure out when you retire and collect Social Security benefits is important depending upon your own circumstances. 

In my own case I considered not collecting at all. But when I looked back at the incredible suffering of really awful jobs from age 10 on to about 30 when I began to own my own businesses I realized I would be living in denial of my suffering then not to collect social security. But, each of us must make our own decisions based upon our best judgements. I decided to honor my suffering as a young person and collect my meager benefits for myself and my daughter's college education.

Another potential advantage of collecting at age 62: You don't have to apply for Medi-Care but go onto the main plan automatically. But you still have to apply for and figure out how to do all the supplemental stuff in regard to medicines and other stuff like that.

After you are 65 there is no Insurance company that I know of that will insure you except Medi-Care directly. 

 

Also, though my teachers have said things like: "If you live to be 100 you will see 500. If you live to see 500 you will see 1000. If you live to see 1000 you will see 5000. If you live to see 5000 you will see 10,000."

However,   I believe the above statement is true for literally everyone on earth at this point.

However, in my real life experience I try to be prepared to die every moment. This is called sometimes, "The Warrior's Stance". I find this is the best way to be to be fearless constantly but also constantly ready for death any moment. I think this stance often creates longevity. 

To be afraid or to panic after 50 is often the main cause of death. However, finding a way to stay calm in death or in life often leads to longevity. Staying calm even if you die allows you also as a soul to choose better where you go next. Panic often takes a soul exactly where they don't want to go. So, if you are a fearful person you need more than ever to make friends with angels. They likely would be your only hope in the afterlife. This is coming from someone who lives in both the world of the living and the world of the dead. I'm just trying to be helpful and practical about all this.