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 option to claim early was introduced over 60 years ago, when Congress set 62 as the program’s Earliest Age of Eligibility. 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 from the Center for Retirement Research at Boston College explores whether the historical adjustments are still actuarially correct.
In short, longer life expectancy and lower interest rates work in the same direction. In both cases, reducing the penalty for early claiming and the reward for later claiming would better align the costs of early and late claiming. Evaluating the magnitude of the benefit factors requires comparing the cost of lifetime benefits for the age-62 claimant to the cost for the age-65 claimant. Using a mathematical model, the CRR concludes that for the individual with average life expectancy, the reduction for early claiming is too large and the delayed retirement credit is about right. The question is whether these conclusions apply across the earnings spectrum.
However, the fact that higher earners live longer and claim later adds a distributional consideration to these findings. If the delayed retirement credit were based on the life expectancy of those who use it, it should be smaller than the current eight percent to equalize the cost of early versus late claiming. Thus, the current adjustments, both between 62 and 65 and between 65 and 70, favor delayed claiming. As a result, they increasingly favor higher earners.