Millions of Americans rely of Social Security benefits to make ends meet when they are unable to work for a wide array of reasons ranging from age to disabilities. Now, another issue in what appears to be a string of causes for concern regarding Social Security benefits has cropped up and this time it is retirees who could be faced with a new problem.
Social Security seems to have plans in motion to increase the age at which beneficiaries are able to access the full retirement age benefits and it is likely to happen as soon as this year.
Social Security makes big change to retirement age
Typically, the most widely accepted retirement age for Americans is 65, however, with regards to Social Security, the “full retirement age” is actually a bit older than that.
The Full Retirement Age (FRA) refers to the age at which Social Security beneficiaries are able to claim their full benefits. These benefits are determined after taking into account the number of years the recipient had worked, as well as the income earned during those years. Simply put, the longer a recipient worked and the higher their income, the higher the figure they are able to claim from Social Security when the time comes.
Decades ago, the FRA used to be on par with the retirement age at 65 years old. However, in 1983, the retirement age threshold was overhauled by Congress so as to account for longer life expectancies.
Subsequently, the FRA has been gradually increased by two months at a time in relation to the birth year of a person. This means that “people who were born in 1957 reached their FRA when they turned 66 years and 6 months old, or starting in 2023; but people born in 1958 must turn 66 years and 8 months old to qualify for their full benefits, or starting in September 2024.”
As such, the FRA is set to increase by yet another two months again, “to 66 years and 10 months old, for people born in 1959,” meaning that this cohort will be faced with the increased FRA from 2025.This means that those born in 1959 will begin to qualify for their full benefits from November 2025.
Claims flexibility
Whilst the qualification standards to make a Social Security claim seem quite stringent, there is some room for flexibility -at certain costs.
Take people aged 62 for instance, they may begin claiming their benefits from that age but the trade-off to this early start would be a locked-in reduced benefit that will remain in effect for the duration of their retirement.
Implications for the Boomer and Gen X cohorts
Most of the impact of this new FRA for those born in 1959 will be faced by Baby Boomers and Gen Xers (those born between 1965 and 1980). Workers born during or after 1960 will have to wait till they are 67 years of age before they are able to claim their full benefits. Someone born in January 1960, for example, would only be able to claim their full retirement benefits in January of 2027.
The unfortunate pitfall of this increase is that the Boomer cohort is the least prepared for retirement according to recent research.
“The youngest boomers — those born between 1959 and 1965 — started to hit 65 this year, but many of them lack adequate savings to support themselves in old age,” the ALI Retirement Income Institute determined earlier this year.
“About 1 in 3 of these younger boomers will rely on Social Security benefits for at least 90% of their retirement income by age 70, the study found. But Social Security benefits are designed to replace about 40% of a person’s working income.”
The situation is not much different for Gen Xers. The average retirement savings for Gen X households is just $150,000. This figure is minuscule compared to the $1.5 million that Americans estimate they need to retire comfortably.
What’s more, according to another study, “about 40% of Gen Xers haven’t saved a penny for retirement.