Understanding the push to raise retirement age for Social Security: What it could mean for you

As we navigate an era of economic change and shifting demographics, you've probably heard some buzz about Social Security. Lawmakers and taxpayers alike question how the program's benefits will last and continue to be funded over the long term.

One commonly debated solution is to raise Social Security's full retirement age. And while that's not a given at this point in time, you may wonder what Social Security raising the retirement age would mean for you.

Deciding at what age to claim Social Security is one of the most important decisions retirees face. As it stands, full retirement age (FRA)—the age at which you can begin receiving your full Social Security benefits—is based on the year you were born. If you were born between 1943 and 1954, your full retirement age is 66. For those born in 1960 or later, the full retirement age is 67.

If you choose to start receiving benefits earlier (as early as age 62), your monthly payments will be reduced by as much as 30% compared to if you wait until FRA. By contrast, if you wait until after your full retirement age to start claiming (up to age 70), your benefits will increase by 8% each year you delay.

"While every situation is different, usually in the case of married couples we recommend the person with the higher of the two Social Security benefits defer, and the person with the smaller of the two benefits claim earlier," says Andrew Mortenson, Thrivent financial consultant in West Bend, Wisconsin. "The larger of the two benefits continues as long as either spouse lives, while the smaller of the two benefits goes away at the first passing. This strategy also helps build flexibility into your plan in the event that there are changes to Social Security rules down the road.”

A decision on whether or not to raise the retirement age has not yet been reached. And the idea of it certainly isn't new, but has recently gained traction as part of broader efforts to address the financial sustainability of Social Security. Lawmakers are considering potential changes as a way to help ensure that the Social Security trust fund, which helps pay benefits, remains solvent in the long term.

Several bills are currently in the works in Congress, including proposals to gradually increase the full retirement age to 68 or even 70, potentially starting in the next decade. The goal behind these changes is largely tied to demographic shifts—namely, the fact that people are living longer, and the number of retirees (think baby boomers) is growing, which puts pressure on the Social Security system. Bottom line: Longer-living Americans are collecting benefits for a longer period of time. And fewer workers are contributing to the Social Security system (as a percentage of the population) compared to past generations.

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While raising the full retirement age could help keep Social Security benefits a reality for another generation of workers, that solution also has its downsides.

• Program longevity. A higher FRA could prevent reserves from being depleted and ensure the next generation's benefits.
• Increased time to save. With more time to work and save for retirement, today's workers could realistically delay taking benefits until an older full retirement age.

• Decreased benefits. Some estimate that increasing the retirement age to 70 (and therefore, delaying access) could result in a net benefit cut of roughly 20% for future retirees.
• Outsize impact on some workers. Lower-earning workers who rely on Social Security for retirement income at an earlier age could feel a financial crunch if they claim benefits before 70.

"The possibility of a delayed FRA for younger generations should motivate young people to save into their own retirement plans and investment accounts so they can have financial independence on their own terms rather than relying exclusively on Social Security," says Eric Berg, Advice Service & Digital Tools consultant at Thrivent.

Instead of raising the retirement age, some policymakers are advocating for alternative solutions to Social Security's funding issue—ways to keep current benefit levels without delaying benefits.

• Increasing payroll taxes. By increasing the payroll tax rate that funds Social Security benefits, the Old-Age and Survivors Insurance Trust Fund (OASI Trust) would have more revenue coming in. That translates to enough money in the OASI Trust to pay today's level of benefits to current and future retirees.
• Increasing the Social Security tax cap. Currently, workers only pay Social Security tax on the first $176,100 in annual earnings. Back in 1983, that cap generated enough revenue to keep Social Security funds healthy. Today, it falls short. Proponents of this approach say that raising the tax cap to $300,000 would generate critical tax revenue to fund the program.
• Identify new revenue sources. In addition to raising the tax cap or payroll taxes, policymakers could consider new revenue sources—especially from the nation's most wealthy. Because earnings only represent a small portion of this demographic's income, there's a potential opportunity to have them contribute more in taxes to generate funding to secure the program's future.

While no changes are set in stone, it's natural to have concerns about how changes to Social Security could impact your retirement savings and timeline. Here are steps you can take today to help protect your family, finances and future.

• Estimate your benefits. You can look up your estimated Social Security benefit online with the SSA. Use their free calculators and tools to determine your projected benefit, and how it varies if you claim early, at your full retirement age or later.
• Strategize your savings. Determine your other sources of retirement income and how much you should have saved for retirement according to your age. You may want to adjust your retirement timeline or savings strategy to factor in potential delays in benefit eligibility. Or you may consider diversifying your retirement savings vehicles with 401(k)s, IRAs or other investments to help safeguard your financial security. "The best thing to do is to create additional sources of income, so that you will not need to rely entirely on Social Security," says Berg. "For many of us in our working years, this means saving more into our retirement plans, so that we can turn the money into income in retirement."
• Consult a financial advisor. Partner with a financial advisor to work Social Security changes into your retirement strategy. They can help you optimize your withdrawals and explore strategies to help maximize your benefits.

While there are many unknowns about how Social Security will be funded in the future and how new legislation could change the rules, you can take action now to ensure that you'll have what you need during retirement.

A Thrivent financial advisor can help you navigate uncertainties with confidence—and build a plan to weather them.