While Congress has enacted several changes to 401(k)s and other methods of saving for retirement, it has yet to address the problems with Social Security. Various Congress people have been aware of the brewing problems with Social Security for decades, and talking about the need to do something for decades, but it has become a third rail of politics in this country, and no real meaningful changes have been made. Due to the country’s rapidly aging population and demographic profile, and at current rates, the Social Security Administration (SSA) has announced that they will only be able to pay retirees about 78% of the benefits projected for the year 2033, so the problem needs to be addressed fairly quickly.
Congress and the SSA have previously increased the “full retirement age” ( FRA—the age at which you can receive your full SS benefit with no penalties applied if you are still working) from 65 to 67 for people born in 1960 or later, and have helped keep the system healthy by understating the inflation rates and related annual Cost of Living benefits ( COLAs) over the past 20 years or more. In fact, according to the SSA, there was “no inflation” in 2009, 2010, and 2015, and so there were no COLAs granted any recipients in those years. Also, the SSA/IRA has continuously raised the taxable wage base that Social Security taxes are taken from for many, many years. For example, the SS taxable wage base was $80,400 in 2001 and $160,200 in 2023!
A recent proposal would raise the full retirement age to 70, an idea that is already being met with a lot of pushback. This initial anger makes sense. Many people have been working hard since the age of 18 and paying into the system only to be told that they need to work longer or risk not getting back any of the money that they paid in over the decades. Such a change is hard to take. The problem mainly stems from an increase in life expectancy. When the Social Security program was initially written, life expectancy was far lower than it currently is, and thus people are requiring money for longer periods. If nothing is changed, Social Security will eventually run dry, or need to drastically reduce benefits, or award them to only the poorest Americans.
Could Delaying Retirement Actually Have Mental Health Benefits?
While the prospect of a delayed retirement age may seem discouraging, an increase in life expectancy means that people may also have more years in retirement. While this sounds like a good thing at first, it does have important ramifications. Work provides people with a sense of purpose and is an important social outlet. Often, people experience mental health issues when they retire, especially if they do not have any strong social connections outside of work. Researchers have found that people who continue to work past retirement age generally report higher levels of happiness and life satisfaction. Moreover, another study found that people who have retired and then returned to work are actually happier and more satisfied than individuals who stay retired.
That said, the work that someone does past this age does not necessarily have to align with what they did earlier in life. The mental health benefits of working in retirement, according to another researcher, are largely connected to a sense of identity and control over life. If people cannot afford to do the things they truly want to do in retirement, working longer to obtain that control may be the solution rather than retiring early and letting go of that identity. Many people choose to pursue different careers in their older age that align with their passions or interests and this could be the way to work longer, have more money in retirement, and feel more fulfilled overall. All of this means that working longer could help some retirees be happier in their years away from their previous career work.
What Would a Delayed Retirement Mean for Americans?
The prospect of a delayed retirement age has caused a lot of speculation about what this actually means for people currently paying into Social Security. Anxiety resulting from this question certainly has a significant impact on mental health as people look at the hard work they have done and the plans they have made. Most experts predict that people currently in their 60s and 70s would not face any changes, as they are very close to retiring, if they have not already done so. However, people in their 50s or younger may need to make significant changes to their retirement plans. The assumption is that raising the retirement age would shift the ages at which benefits can begin. Currently, people can claim benefits starting at 62 with a reduction in monthly benefits. Also, people can delay retirement until age 70 to get a boost to the monthly benefit. One of the assumptions is that this boost would disappear, although it may be pushed to age 72.
People planning to retire early would be the most impacted. Anyone who wants to retire at 62 may simply need to work for more years or have not enough options for paying their bills. People planning to retire at 70 may be in a similar boat, as it could out that no benefit will exist for delaying retirement further. If the latter is the case, these individuals may end up working additional years just to save more for retirement. Another problem that experts foresee has to do with required minimum distributions. While recent laws push the age for these distributions to age 73 at this time, and to age 75 by 2033, people will need to rethink their strategies in some cases to minimize the taxes they face. However, this all depends on how tax laws evolve alongside Social Security legislation. If the expectation is for higher taxes in the future due to the nation’s terrible debt and demographic troubles, converting some IRA or 401k assets to tax free ROTH status before age 73 would be a smart step for many people. In the end, planning would become more important and strategies may begin incorporating late changes in career or similar shifts that make it more palatable to work additional years.
Are There Other Possibilities for the Future of Retirement?
The debate about a change to the retirement age presumes that the future will still have a guaranteed income system. For that matter, it presumes that retirement will still be a generalized practice in society. Historically speaking, the notion of a full retirement is still a relatively new concept. So, it comes back to people finding purpose in work and doing things they feel passionate about even past the age of retirement. As we become more able to align passion with work, the future of retirement may look much different than it does today.