Increasing the Retirement Age Could Drive up Disability Applications

To ensure Social Security's long-term solvency, the government is looking at many options for saving money. One of these options is to increase either the early retirement age or the full retirement age, or both. However, increasing the retirement age may swell the number of people who apply for disability benefits, according to a report by the Government Accountability Office (GAO).

Currently, the early retirement age is 62 while the full retirement age is 67. If you retire early, you will receive reduced monthly benefits for the rest of your life. Meanwhile, Social Security Disability Insurance pays cash benefits to people who are unable to work for a year or more because of a disability. Benefits continue until you are able to work again on a regular basis, or until you reach retirement age.

The GAO analyzed data on older workers to discover the likelihood of whether workers who are near retirement age would be able to continue working if retirement was delayed. The GAO found that about one-quarter of workers age 60-61 (from 1998 2008) reported a work-limiting health condition and about two-thirds reported having a job that is physically demanding. Also, workers who might have difficulty working to an older retirement age have less education and lower household income than those who do not report health limitations.

The GAO concludes that raising the retirement ages could increase the number of applications for disability benefits because some workers with disabilities could apply for disability benefits instead of continuing to work until they reach retirement age. In addition, raising the full retirement age would reduce benefits for workers who retire early, creating a financial incentive to apply for disability benefits, which are not reduced.

The report gives some policy options for supporting older workers, including changes to unemployment insurance, workers' compensation benefits, and modifying disability benefits, but notes that these would be difficult to implement and have a high cost. To read the full report, click here.

To learn more about Social Security benefits, click here.

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