Publication Date: November 2019
Publisher: Center for Retirement Research at Boston College
Author(s): Alicia H. Munnell; Anqi Chen
Keywords: Financing Retirement
Coverage: United States
The option to claim Social Security benefits at any age from 62 to 70 – with actuarial adjustments designed to keep lifetime benefits constant for an individual with average life expectancy – is a key feature of the program. The actuarial adjustments, however, are decades old and do not reflect improvements in longevity or other important developments over that time. The option to claim early was introduced over 60 years ago, when Congress set 62 as the program’s Earliest Age of Eligibility. Those claiming at 62 receive 20 percent less in monthly benefits than if they had waited until 65 to claim. The option to claim between 65 and 70 on an actuarially fair basis stems from the 1983 Social Security amendments, which gradually increased the annual “delayed retirement credit” from 3 percent to 8 percent. Much has changed since these actuarial adjustments were introduced: interest rates have declined; life expectancy has increased; and longevity improvements have been much greater for higher earners than lower earners. In the wake of these developments, this brief explores whether the historical adjustments are still actuarially correct. The discussion proceeds as follows. The first section provides a brief history of the Social Security benefit adjustments. The second section explains how increasing life expectancy and declining interest rates would call for smaller reductions for early claiming and a smaller delayed retirement credit for later claiming. The third section explores the extent to which existing adjustments deviate from actuarially fair magnitudes, finding that the reduction for early claiming – initially about right – is now too large, while the delayed retirement credit – initially too small – is now about right. The fourth section moves from the average worker to explore the impact of the actuarial adjustments on workers at various earnings levels given the disparity in longevity improvements. The final section concludes that the adjustment factors now favor delayed claiming and, as a result, increasingly benefit higher earners.