Current legislation pushing workers to delay retirement until later in life
By Mark Garro
Wealth of Geeks
The average U.S. retirement age has increased to 61, from 57 in the 1990s, according to a recent Gallup poll.
Previous generations looked forward to winding down their work lives in their mid-60s, but Gallup reports many are staying in the labor force longer than they anticipated.
The mounting costs of living, dwindling savings, uncertain Social Security benefits, and a volatile job market are forcing many to rethink their retirement plans.
The situation does not just raise economic concerns; it sparks a deeper conversation about how Americans envision their golden years. This unsettling shift has implications for the aging workforce and all generations to come.
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The retirement reality shift
For the last four decades, the full retirement age for Americans has been gradually increasing from 65 to 67 years. Consequently, anyone born after 1960 can anticipate that their golden years might not begin at 65. What may come as a shock to some is just how geared current legislation is towards pushing workers to delay their retirement into their later life.
The Social Security Administration’s (SSA) latest rules make it possible to retire as early as age 62, regardless of the full retirement age. However, there’s a catch. Any worker who begins receiving benefits at age 62 or any time before their full retirement age of 67 may see a reduction in their benefit amount — up to 30 percent. Thanks to delayed retirement credits, remaining in the workforce up to age 70 can result in higher benefits paid going forward.
In the face of rising living costs, many individuals work well into their retirement years. Research undertaken by the public policy think tank American Enterprise Institute notes that over the past 30 years, the average retirement age has increased by about three years, from 62 to 65.
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Financial, physical, and emotional impacts
This trend is not just a personal choice but often a financial necessity driven by insufficient retirement savings, rising healthcare costs, and increased life expectancy. Estimates by the National Council on Aging reveal that eight out of 10 households with seniors are either facing financial difficulties or will be vulnerable to economic instability as they grow older.
Working involuntarily into one’s later years has been linked to a range of health issues. In 2021, the National Library of Medicine conducted a systematic review exploring literature published over the last two decades on the health effects of employment in those over 64 years of age. While delaying retirement, particularly on a part-time basis, showed evidence of beneficial effects, this was primarily with men in low-demand jobs.
On the contrary, those forced to continue working full-time for financial reasons, particularly in high-demand and low-reward jobs, were far more likely to experience adverse effects on physical and mental health.
In addition, a need to work longer hours further compounds risks for older people. Data from a 2021 World Health Organization report shows that deaths from stroke and heart disease as a result of working more than 55 hours per week jumped 29% since 2000. The majority of these deaths were among those aged 60 to 79.
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A critical lifeline
It would be remiss to underestimate the role of Social Security in safeguarding financial stability. For most Americans, it serves as a fundamental income layer upon which to construct retirement plans. It also offers vital protection for disabled workers and families who lose their primary earners.
A growing trend among employers is to move away from traditional pensions that offer set benefits upon retirement. Instead, they focus on contribution-based plans like the 401(k), which depend on how much workers invest and the returns those investments achieve. Consequently, Social Security is the only guaranteed retirement income shielded from market risks and fluctuations.
Recent statistics from the SSA indicate that nearly 67 million Americans will, on average, receive Social Security benefits in 2023. The sum of which throughout the year will be $1.4 trillion. It is estimated that 97% of older Americans either currently receive or will eventually qualify for benefits. Furthermore, for many beneficiaries, Social Security is their primary income source. SSA data reveals that nearly half of retirees depend on Social Security for at least half of their income. For one in every seven retirees, this figure surges to 90%.
Unlike most private pensions or annuities, Social Security also adjusts its benefits for inflation. Without these adjustments, the Center on Budget and Policy Priorities estimates that nearly 40% of seniors 65 and older would fall below the poverty line. In other words, Social Security benefits elevate over 15 million older Americans above the poverty threshold.
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A concerning outlook
Current and future administrations have a major challenge ahead as Social Security and Medicare programs face significant financing issues. The latest annual report from the SSA Board of Trustees forecasts that the current form of scheduled benefits will only be fully payable until 2033. After that time, reserves of the Old-Age and Survivors Insurance Trust Fund will be depleted. Consequently, future estimates of income for the fund will only be sufficient to cover 77 percent of scheduled benefits.
Against this backdrop, the SSA has renewed discussions of increasing the full retirement age to 70, which would effectively cut currently scheduled benefits by nearly 20 percent.
Eric Henderson, president of Nationwide Financial’s Annuity business segment, has some advice for those close to retirement age: “The best thing those nearing retirement can do is to work with an advisor to choose the right time to claim benefits. This is a decision with huge implications for income over the course of retirement — which for many people could be 25-30 years or longer. It’s also worth having a conversation with an advisor about how you may be able to leverage the money you have saved, including your 401(k) plan, to create a predictable stream of income.”
A rising age for Social Security eligibility only compounds current issues for older people, forcing many to work longer. These cuts could be profound and would fall hardest on lower- and middle-income beneficiaries who rely most heavily on Social Security benefits.
