What Raising the Social Security Retirement Age Would Mean

In a new fiscal year 2025 budget, policymakers call for raising the Social Security retirement age.

The proposal is the latest to target the largest program in the federal budget — and the largest income source for many retirees. It comes as the Social Security Administration released a report showing that, if Congress does nothing to address the program’s budget shortfall, Social Security cannot pay full retirement benefits after 2033.

Pressure is mounting to prevent benefit cuts for current and future beneficiaries. Proponents of raising retirement age argue that it would help address the Social Security deficit. Opponents say there are better ways to fix the program. Most Americans, polls show, are against raising the retirement age.

The State of Social Security

President Roosevelt signed the Social Security Act into law in 1935. Today, the program pays retirement benefits to approximately 53 million Americans. It’s designed to pay retired workers an income that is based on their work history and is financed primarily by payroll taxes.

Those taxes are deposited into two trust funds in the U.S. Treasury and invested in U.S. government securities. The Old-Age and Survivors Insurance (OASI) Trust Fund pays benefits to retired workers and their families. The Disability Insurance (DI) Trust fund pays benefits to disabled workers and their families. A Board of Trustees oversees the trusts and reports annually to Congress.

Per the latest Trustees report, issued in May, the OASI Trust Fund is in trouble because Social Security is paying out more in retirement benefits than it’s receiving from taxes. The Trustees project that this trust will be insolvent by 2033. At that point, all beneficiaries will face a 21 percent benefit cut.

If funds from the DI trust covered the OASI shortfall, the combined trust funds will be depleted by 2035 and beneficiaries would face a 17 percent benefit cut, the report said.

Social Security is the largest single program in the federal budget, making up approximately one-fifth of total federal spending. Nearly nine out of 10 seniors receive benefits in 2024, representing approximately 30 percent of the total income of older Americans.

Arguments for Raising Retirement Age

If the Social Security cost-to-income imbalance remains uncorrected, annual benefits in 2033 could be cut by $17,400 for the average newly retired, dual-income couple and $13,100 for a typical single-income couple.

For many retirees, Social Security is their primary or sole source of income. Around 40 percent of older Americans rely on the program for most of their income. One in every seven seniors depend on it for over 90 percent of their income. Nearly half of Americans aged 55 and older have no retirement savings.

Social Security benefits are an especially important source of retirement income for workers at lower earnings levels. For a low-wage earner who retires at 65 in 2024, for example, Social Security replaces about half of their prior earnings, versus one-third of the prior earnings for a high earner, the Center on Budget and Policy Priorities (CBPP) calculates.

When the Social Security Act became law, about half of the nation’s seniors were impoverished. Today, that number hovers around 10 percent. In 2021, Social Security lifted more than 18 million seniors out of poverty.

How do you save one of the most popular, successful, and vital government programs in U.S. history? Some say the answer is raising the retirement age. The move is not without precedent.

While the fundamentals of Social Security have remained the same for nearly 90 years, some things have changed. The most significant reforms came in 1983. At that time, the trust fund was facing a severe shortfall that, without action, would have led to insolvency. That year, legislation raised the full retirement age (FRA) gradually over time, from 65 in 2000 to 67 at the end of 2022.

With a higher FRA, retirees must wait longer to receive full benefits. They then have fewer years during which they are eligible for full benefits. Their lifetime benefits also go down. Increasing FRA also reduces benefits for workers who retire early. Working longer means people pay more in Social Security taxes and increase revenues.

Adjusting for demographics makes sense — at least in theory. People are living longer than they were in 1935 and drawing benefits for more years.

This was a popular argument for raising the Social Security retirement age in 1983 and remains a justification for similar proposals today. When Social Security was enacted, life expectancy at birth was 61; the eligibility age was 65. Today, life expectancy is 79 and retirement eligible age ranges from age 62 (early retirement) to 67 (full retirement). This change coincides with improved health care and less physically demanding jobs that allow older Americans to work longer, says one think tank.

But as another think tank highlights, U.S. life expectancy has declined. Over the same period that FRA increased by two years under the 1983 legislation, life expectancy decreased 0.4 years. Since 2000, U.S. life expectancy has further decreased to 76.4 years — the shortest it’s been in nearly two decades.

Plans to increase the retirement age have been proposed in 2010, 2016, and more recently, with a 2023 budget calling for raising FRA to age 69.

Arguments Against Raising Retirement Age

Raising the retirement age has been a longtime staple of Republican budget proposals, but it remains overwhelmingly unpopular among the American people.

A 2023 poll found that 78 percent of Americans would oppose raising the FRA from 67 to 70. Opposition remained strong (62 percent) even when respondents were asked whether they would support upping the retirement age if it meant benefits would last longer.

A 2023 survey found that more Americans favor lowering the retirement age below age 67 than raising it above age 67. Seventy-nine percent of Americans say Social Security benefits should not be reduced at all, including four in 10 who said the government should provide more assistance.

CBPP policy experts write that the two main arguments for raising Social Security retirement age — people living longer and avoiding benefit cuts — don’t stand up to scrutiny.

Americans are living longer compared to 1983, the last time the retirement age was raised, but longevity is not spread equally across the workforce. Low-wage workers have seen little or no improvement in life expectancy and would face a disproportionate benefit cut compared with higher-wage earners.

Research also shows growing gaps in life expectancy between low- and high-income workers. Focusing on “average” life expectancy masks longevity differences by sex, race, and ethnicity. Black workers, for example, tend to have shorter life expectancies and lower lifetime earnings than white workers.

The argument that raising the retirement age would avoid across-the-board benefit cuts doesn’t hold water, either, says the CBPP. Doing nothing would result in a projected 23 percent cut for all beneficiaries. Yet pushing FRA to age 70 would have an almost identical outcome, cutting average lifetime benefits for new retirees by nearly 20 percent.

Instead of policies that would cut benefits for retirees who need them most, policymakers should look to more equitable solutions, such as raising payroll tax revenue, concludes CBPP.

This provision is included in the Democrat-sponsored Social Security 2100 Act, which calls for lifting the income cap on Social Security taxes above the 2024 limit of $168,600.

A 2022 poll of registered voters suggests making more wages subject to the payroll tax would have broad support, with 79 percent of Republicans and 88 percent of Democrats in favor.

Plan Ahead

Cuts to Social Security retirement benefits could be coming if Democrats and Republicans don’t find a solution.

Don’t wait for a deeply divided Congress to solve the problems facing Social Security. Take steps now to shore up your retirement. Experts generally recommend that retirees have enough savings to replace 70 percent to 80 percent of their preretirement earnings. Social Security benefits are estimated to replace only about half of that for the average worker.

Future retirees can supplement Social Security with 401(k)s, IRAs, and other savings and investment strategies. Current retirees might consider short-term bank savings accounts, stock and bond investments, and renting real estate.

To discuss a specific retirement funding strategy, consult a local financial planner.