The Real Reason a Higher Retirement Age Won't Fix Social Security

What You Need to Know

A new paper warns that raising the retirement age would have little effect on getting people to work longer.
The primary reason is that many older Americans claim benefits as soon as possible.
The authors suggest a more holistic set of policy solutions would be a superior approach to raising the retirement age.

More than one-fifth of older workers in the United States start claiming Social Security benefits as soon as they are eligible, according to a new paper published by the Schwartz Center for Economic Policy Analysis at The New School, and this fact has big implications in the debate on how to “save” Social Security.

The new paper was penned by Teresa Ghilarducci, researcher and policy advocate at The New School, and Drystan Phillips, an aging and health policy researcher at the University of Southern California.

According to the duo, the results of their analysis challenge the widespread assumption that people claim their retirement benefits only when they retire, with more than 20% of older workers in the United States claiming Social Security benefits as soon as they are eligible — even while working for pay.

Specifically, lower-income older workers are more than three times as likely as high-income workers to claim early, indicating a reliance on Social Security payments to supplement low wages.

As the researchers emphasize, those who claim before the full retirement age receive reduced benefits throughout their lives, leaving them financially vulnerable once they stop working.

Ultimately, because so many older workers collect reduced Social Security benefits, the researchers find that raising the retirement age would have little effect on getting people to work longer and will simply reduce benefits further. Instead, Ghilarducci and Phillips argue, reforms should focus on policies like creating a bureau to support work at older ages, and bolstering Social Security benefits for those who risk falling into poverty in retirement.

Claiming Patterns of Older Workers

According to Ghilarducci and Phillips, among a cohort of individuals who were working at age 63 in 2010, 20% had already claimed Social Security retirement benefits. By 2012, when this cohort was 65, nearly 40% of those still working had already claimed. For reference, the normal retirement age for this cohort was 66.

Due to the design of Social Security, the paper explains, starting to claim benefits earlier than the full retirement age reduces monthly benefits for the rest of one’s life. For example, an individual with a normal retirement age of 66 with an expected monthly benefit of $1,000 would receive monthly payments of only $750 if they started claiming at 62.

As the researchers point out, the evidence is clear that low earners are most likely to claim early. To show this, they examine workers in 2018 who received Social Security benefits in the previous year at different ages and by their total income level, defining low income as income at or below $37,500, middle income as income greater than $37,500 and less than or equal to $70,000, and high income as greater than $70,000.

The duo finds that low-income workers at age 63 are more than three times as likely to have received Social Security retirement benefits in the prior year as high-income workers at the same age.

Notably, they do not presume that early claiming workers are making a mistake by reducing their lifelong Social Security monthly benefit because they claimed before age 70.

“Our previous research suggests that older workers who are struggling to maintain their standard of living have very limited financial wealth from which to draw on to supplement low wages, leaving them with no choice but to claim early if they want to stabilize their income,” the duo writes.

The Difficulty of Working Longer

The paper then turns to examining the working practices of older Americans, finding significant differences across groups with different levels of educational attainment.

According to the researchers, at all ages, individuals without a high school diploma are less likely to be employed than individuals with higher levels of education. Most notably, they find that individuals with graduate degrees are three times more likely to have a job than an adult without a high school degree, and those with advanced degrees are more than three times more likely to work at age 67.