Older Americans depend greatly on the three big federal benefit programs – Social Security, Medicare, and Medicaid. All have been targeted for significant changes by either President Trump, his cabinet appointees, or Congressional Republicans. President Trump’s call for quick Congressional action on his campaign promises will encounter a much longer legislative process.
What would happen if the formal retirement dates for Social Security and Medicare were extended by two or perhaps even three years? Leading Republicans already have included such proposals in their evolving legislative packages. President Trump has not revealed yet where he stands and, at least formally, has not moved away from his campaign promises not to change either program.
The current eligibility date for Medicare is age 65, although people with disabilities can apply for the program at any age. Likewise, Medicaid eligibility is based on need, not age. There are about 55 million persons on Medicare, including 9 million disabled persons under age 65. About 10 million of the 70 million people on Medicaid are lower-income, “dual eligible” Medicare enrollees.
Social Security’s version of retirement age is known as the full retirement age, and is currently age 66. Many people retire earlier: normal retirement and spousal benefits begin as early as age 62, and survivor benefits at age 60. Benefits claimed prior to full retirement age are hit with early retirement or survivor reductions. Full retirement age already is set to begin rising in four years for people born in 1955 and later, and will reach 67 in two-month increments for people born between 1955 and 1961.
Supporters of extending these dates to age 68, 69, or even 70 often point to impressive longevity gains that have added years to typical life spans. While this overall statistic is true, longer lives are being enjoyed mainly by wealthier persons, and the gap appears to be growing.
A study that looked at life expectancy at age 50 by socioeconomic status found the longevity gap of women born in 1920 was nearly five years between the lowest and highest status groups. This gap exceeded 10 years for women born in 1940. Among men, the 1920 gap was less than six years while the gap among those born in 1940 had risen to a dozen years. And among those in the lowest status groupings, longevity gains were stagnant during the 20 years separating the two research groups.
What this means for senior benefits is that increasing the retirement age might be a non-event for wealthier persons but a big potential problem for lower-income folks. And it is precisely the lower-income groups that rely most heavily on Social Security and Medicare. In particular, people claiming Social Security at younger ages tend to have physically demanding jobs that limit their careers.
Increasing retirement ages without adjusting programs to recognize the needs of lower-income beneficiaries thus would amount to a real cut in benefits that might be invisible if the unequal longevity gains are not considered.
Raising the Medicare eligibility age would boost the time during which people would need to have other types of health insurance, either from employers or from private insurance. With lower-income workers being more likely to retire at younger ages, and less able to afford health insurance, this would represent a big practical problem.
Social Security benefits are now computed in a way where simply extending the full retirement age would penalize people who take benefits early, as well as reduce the maximum benefits that people who defer taking Social Security could earn.
Social Security tries to calculate benefits so that a person who begins benefits at age 62 will receive as much money over his or her lifetime as if they delay taking benefits until age 70. For this approach to work, benefits taken at earlier ages must be reduced compared with benefits taken at full retirement age or later.
Right now, a person who begins claiming their retirement benefit at age 62 will receive only 75 percent as much money each month as if they waited until their full retirement age of 66 to begin claiming their benefits. A person claiming a spousal benefit at age 62 would get only 70 percent as much each month than if they waited until full retirement age to claim.
Under current law, extending the full retirement age to 67 would further reduce benefits for people who claimed at age 62 – to 70 percent for retirement benefits and 65 percent for spousal benefits. Further raising the retirement age while leaving the current benefit formula in place for early claimants would further increase the early-claiming penalty.
There would be a comparable reduction in the financial benefit of waiting to file until age 70, which is now the claiming age at which retirement benefits peak (spousal and survivor benefits peak at full retirement).
With a full retirement age of 66, a person can earn delayed retirement credits of 8 percent a year for up to four years before they file at age 70. When the full retirement age is increased to 67, they will be able to gain only three years of such gains. And if the full retirement age is further increased, without a change in the age at which maximum benefits are earned, the benefits of delayed claiming will be further reduced.
Congress is free, of course, to raise retirement ages and mandate changes in how benefits are calculated. But simply raising retirement ages without such adjustments would amount to a benefit reduction that might be invisible to people who don’t understand the inner workings of these programs.