An article by Mary Beth Franklin at Investment News asks, “Is age 70 the new 65 for retirement?” Franklin is asking that question in regards to Social Security benefits because of a research study by the Center for Retirement Research at Boston College. That study compared the retirement age of 65 in 1940 with retirement today.
Retirement at 65 has been the norm for quite some time. In the 1880s, Chancellor Otto Von Bismarck of Germany responded to Marxist unrest by the people of his country by proposing a program that provided care for the disabled and aged. Age 65 was eventually chosen because that was the average life expectancy at the time.
Perhaps that seems a bit cynical but when our own Social Security program was birthed, age 65 was chosen as the retirement age here as well. No benefits were paid for people who chose to retire prior to age 65. In fact it wasn’t until 1956 that Congress gave women the option to retire at 62. Five years later, the same option was extended to men. Those who chose early benefits at that time had their benefits actuarially adjusted so that a person would theoretically earn the same amount over the longer period of time as if they had waited. In the ‘70s, Congress offered an increase of benefits for those who delayed collecting retirement to a certain age (originally 72 and later age 70).
To make it fair for those who delayed, Congress instituted an adjustment. That adjustment started at 3 percent and has grown gradually to 8 percent per year. That’s what we have now. For every year past your full retirement age, (66 or 67 depending upon your birth year), that you postpone retirement your benefit grows by 8 percent. On the other end of the claiming strategy, claiming earlier than your full retirement age “costs” you benefits. So that an individual who claims benefits at age 62, sacrifices 25 percent of their benefit by doing so.
Alicia Munnell, the director of the Center for Retirement Research at Boston College and author of the study wrote that the way that benefits are currently figured, 70 is the age that people are likely to have an adequate benefit for securing their retirement. That being the case, she thinks the government should eliminate the concept of full retirement age and encourage people to work longer by letting them know that 70 is when they’ll be able to claim adequate benefits for retirement rather than at any age younger than that.
What Franklin argues is that Munnell’s work might be good theory but that crafting a Social Security strategy requires a deeper look. It may not always be the most beneficial to wait until 70 (or any other specific age). Other items may change the equation, say for instance one spouse dies sooner than his or her life expectancy would suggest. Franklin cites a 2012 paper, “The Decision to Delay Social Security Benefits: Theory and Evidence and notes that the authors found that our current low interest rates increased the value of delayed retirement benefits. Thus, conceivably as the interest rate increases, the value for delaying retirement benefits may shrink and the argument for it as well.
What we can get out of all this back and forth is this: There are no hard and fast rules that work for everyone when it comes to determining Social Security strategies. Sometimes it makes sense to claim early, sometimes it doesn’t. The key is to have a financial advisor who is willing to spend the time and effort to analyze your specific situation. In order to do that, that person needs to be knowledgeable about Social Security claiming rules so that you can make the most of your benefits. If your advisor isn’t familiar with strategies for maximizing your benefits, you need to find one who is. One such individual is Julie Price. You can contact Julie by calling 1-877-76-AGING or look to our Preferred Partners to find people who understand that there is more to claiming Social Security than your 62nd, 67th or 70th birthdays.