Raising the Retirement Age: A Sneaky Way to Reduce Social Security Benefits

Some Republican candidates are promoting a policy change that would hurt workers by disguising it with a pleasant-sounding phrase.

J. Scott Applewhite / AP

Americans like their Social Security benefits quite a bit: They oppose cuts to them by a margin of two to one. Even Millennials, who won’t be seeing benefits anytime soon, feel protective of Social Security, according to a poll from the Pew Research Center.

One way to effectively cut Social Security benefits is to raise the age at which they kick in. And yet, when asked specifically about raising the retirement age, Americans are mixed.

Perhaps confusion arises because “raising the age of retirement” sounds like a nice jobs program for older Americans, or an end to forced retirement. I sympathize with that position: Anyone who wants to retire later and work into old age should have a job. But that’s not what raising the retirement age would entail—the fact is, raising the Social Security retirement age represents a reduction in benefits: Because the monthly payments a person receives grow bigger the later in life he or she retires, raising the age cutoff reduces the total amount of money paid out.

Voters haven’t always been confused about this. In 2005, 77 percent of those polled by the University of Connecticut’s Roper Center opposed raising the retirement age. But in 2011, only 48 percent were opposed, and this year, a poll found that 78 percent of respondents were in favor of raising the retirement age to 68. This increase likely can at least in part be attributed to the presidential candidates, including Jeb Bush and Chris Christie, who are calling for such a raise.

Before we can see why raising the retirement age actually represents a cut in benefits, it’s necessary to understand how Social Security payouts are calculated. Participants can start collecting benefits beginning at age 62, but they get a boost to their monthly benefits—the equivalent of a 6 percent increase per year—for waiting until they’re 67. (Sixty-seven is the retirement age for anyone born in or after 1960, and that’s the figure I’ll be using in the example that follows.) After 67, that bonus increases to 8 percent per year, for each year until age 70. All told, those yearly rewards add up to a 44 percent increase in monthly benefits between retiring at 62 and retiring at 70. Retiring at any age before 70 results in permanently lower benefits for life, making 70 the best age to start collecting benefits (unless a person is in ill health and doesn’t expect to live for very long); a guaranteed, inflation-protected return of at least 6 percent per year is unheard of in stock markets.

Raising the Social Security retirement age, then, means that future retirees will get smaller payouts than previous ones did after starting to collect benefits at the very same age. The differences can be dramatic, as the following example illustrates: If, under the current cutoff, you’re eligible for $1,000 at age 67, you could instead choose to get $700 a month for retiring at 62 or $1,240 a month for retiring at 70. But if the retirement age was increased to 70—a number mentioned by John Boehner, Jeb Bush, and Chris Christie—the $1,000 benefit at 67 turns into $800, the $700 benefit at 62 turns into $565, and the $1,240 benefit at 70 turns into $1,000.

These cuts matter significantly on the level of the individual. But, even if Social Security as a whole were in crisis (it’s not), cutting the benefits that people can collect before age 70 wouldn’t even be a particularly effective way of closing any budget gaps: Increasing the retirement age from 67 to 68 would erase 12 percent of the deficit that Social Security is expected to face 75 years from now.

If raising the retirement age would only reduce this deficit by 12 percent, then why are some Republican candidates pushing it so hard? The answer is that it appeals to two types of people: employers, who would get to hire from a larger labor pool, and hard-line members of their party, who ardently desire any cut to government spending.

But a much better method to get Social Security in order, should it prove to be in crisis, would be to change the way Social Security taxes work. As of now, taxpayers contribute money into Social Security, but only for every dollar they earn up to $118,500—any dollar earned beyond that isn’t subject to Social Security taxes. Getting rid of this cap would reduce 70 percent of that expected deficit 75 years from now. But that’s not what presidential candidates are talking about—they’re talking about something that would hurt workers, masked in a phrase that makes it sound like it would help them.