The steady increase in full retirement age for Social Security has resulted in people working longer and not claiming their benefits early, according to new research by the Congressional Budget Office.
According to CBO data, the full age at which people can retire has risen from age 65 for people born before 1943 to age 67 for those born after 1960. In a recent blog post by Joyce Manchester, chief of the long-term analysis unit in the health, retirement and long-term analysis division of the CBO, she said that raising the full retirement age (FRA) forced people to delay claiming their Social Security benefits.
“That delay occurred in part because the FRA acts as a signal about when to claim benefits and also because the increase in the FRA meant that if a person started collecting benefits at age 65, those benefits would have been smaller than they would have been without the increase in the [full retirement age]. As a result, people tend to work longer on average when the FRA increases,” she said.
Five other factors contributed to the delay in retirement during the past decade, including a legislated relaxation of the earnings test, which reduces current Social Security benefits when a person has earnings that exceed a certain amount; a legislated increase in the delayed retirement credit, which increases monthly payments for people who wait until after the [full retirement age] to claim Social Security benefits; an ongoing shift among private pension plans from a defined-benefit structure to a defined-contribution structure; rising levels of educational attainment; and a rising proportion of older women who have been in the workforce for a long time, according to the CBO.
Among people eligible to claim Social Security benefits, the increase in the FRA made 66-year-olds more likely to postpone claiming for a year than 62-year-olds. Because people often coordinate their decisions to retire and to claim Social Security benefits, CBO estimates that the increase in the FRA increased the labor force participation rate at age 66 more than at age 62. CBO uses that relationship to project rates of labor force participation for older people as the FRA rises from age 66 to age 67 under current law, Manchester said.
The resulting rise in the projected rates of labor force participation for older people is noteworthy. For men ages 62 to 64, CBO projects that the rate of labor force participation will rise from about 52 percent in 2012 to about 55 percent in 2022. For men ages 65 to 69, the projected rate rises from about 37 percent in 2012 to about 41 percent in 2022.
The changes for women are similar: The projected rate of labor force participation for women ages 62 to 64 rises from about 44 percent to about 48 percent, and for women ages 65 to 69, the projected rate increases from about 28 percent to about 32 percent. In 2022, the FRA will be 67 only for people age 62 or younger in that year. As that group ages and the FRA gradually becomes 67 for all older people, CBO projects that the labor force participation rate for older people will continue to increase, although at a slower pace.