The Advantages And Disadvantages Of Raising The Retirement Age

After increasing the retirement age based on birth year a dozen times for those born between the years of 1937 and 1960, the retirement age has remained the same for anyone born since 1960. This has prompted Congress to consider raising the retirement age again. While some may recoil at the notion, there are pluses to raising the retirement age.

“The advantage of increasing the normal retirement age is to keep Social Security solvent for more retirees for longer,” says Emily C. Rassam, senior financial planner at Archer Investment Management in Charlotte, North Carolina. “There are several potential ways to fix the Social Security system. In short, they involve increasing revenue or decreasing distributions. If the Normal Retirement Age increases again, it will decrease total lifetime payouts for retirees, especially those who start collecting income early.”

Not only does raising the retirement age give Social Security a stay of execution, but it also resets the minds of younger generations to the reality of their life expectancy.

“People are generally working longer now as they are living longer,” says Clint McCalla, senior wealth manager at LourdMurray in San Diego. “If you examine the practical implications of living longer, that means you need to save more than prior generations. By raising the retirement age, you are aligning with this new reality and setting the new standard. Those that can afford to retire will continue to have that option. I believe that raising the retirement age may also aid in the conversation around ageism in business by removing this expectation that someone must move on once they reach a certain point in their career.”

Despite these pluses, some may focus on the negatives of increasing the retirement age. This feeling may be especially acute among people nearing retirement.

“Those against the raising of the retirement age say that any extension is a clear benefit cut and a broken promise on the part of their government,” says Robert Reilly, a member of the finance faculty at the Providence College School of Business and a financial advisor at PRW Wealth Management in Boston. “Another cause for concern is that the flexible option of retiring with reduced benefits at age 62 could be eliminated. There is quite a bit of debate as to whether the US population’s average mortality rate is on the rise or waning. Many retirees may not feel that they will have many golden years in their late 60s, never mind into their 70s. Several studies have also shown that any cut in the retirement age will impact minority and poorer communities significantly more than wealthier populations.”

The timing of the raise can have a significant impact on retirement planning. This presents a major problem for those close to retirement. These people have managed a retirement savings program based on the belief the current benefits package will remain the same. Any changes will upset their projections. This can be detrimental to them if they don’t have enough time before retirement to make up for those changes.

“The biggest disadvantage is that it makes it harder for people to retire when they hope to as any change to the retirement age could also impact the age when benefits like Social Security and Medicare may be accessible,” says Chris Kampitsis, a financial planner at The SKG Team at Barnum Financial Group in Elmsford, New York. “One of the biggest disadvantages of raising the Social Security retirement age is that people paid into the system and planned using a certain set of assumptions that will now be delayed. Should they choose to retire earlier, they will have a bigger gap to fill should they choose to defer Social Security to ‘full retirement age’ or beyond.”

Countering the idea that a higher retirement age will give people more time to save for their golden years because they’ll be in their prime earning years is the reality that it’s often harder for older people to keep their jobs. As the highest paid employees, they are often the first to be let go. In addition, they may not land a suitable position to fully replace the salary they just lost.

“The main disadvantage of raising the retirement age is that it could have a negative impact on the quality of life for older people,” says Derek Miser, investment advisor and CEO at Miser Wealth Partners in Knoxville, Tennessee. “Many people rely on their pension income to survive and may not be able to find or keep jobs as they age. Older people are also often more vulnerable to physical and mental health issues, which can be exacerbated by working longer hours. What it breaks down to is raising the retirement age could lead to increased inequality in the workforce, as people with higher incomes and better health will be able to stay employed longer than those with lower incomes and poorer health.”

This last point exposes the potential irony of raising the retirement age for Social Security. While this may reduce cash outflows for retirement benefits, it may increase the demand for disability payments.