Washington, DC - Social Security Matters by AMAC’s Certified Social Security Advisor C.J. Miles Association of Mature American Citizens:
QUESTION: As the “full retirement age” as defined by the government creeps up to age 67 (and who knows what it will be for my grandkids) it makes me wonder where the original retirement age of 65 came from. I’ve heard that it had something to do with Germany, but surely America didn’t want to model themselves after the Germans during World War II, right?
ANSWER: There are rumors that the United States chose 65 as the retirement age because of Germany, but there’s a little more to the story than that. First of all, let me clarify something important – Social Security was established in 1935, which was 4 years before World War II. Other than that, many countries looked at Germany’s social insurance system for the simple reason that they were the first country to adopt such as system (in 1889). A common myth is that Germany’s system adopted age 65 as the retirement age because it was designed by Chancellor Otto von Bismarck who was 65 at the time; however, he was actually 74. In addition, Germany’s original retirement age was 70 and it wasn’t until 1916 that the age was lowered to 65.
As for the United States, the Committee on Economic Security (CES) based their decision of age 65 on (1) the common retirement age chosen by private and state-run pension systems; and (2) the age that would maintain funding through modest payroll taxation. Of course, that brings us to today’s increasing retirement age – payroll taxation is not keeping up. In addition, life expectancy is increasing and is certainly longer than it was in the 1930s.
QUESTION: I keep hearing that the full retirement age for Social Security benefits is going to increase to 67 years old. I'm currently 54 (born in 1958). Will my full retirement age be 66 or 67?
ANSWER: Actually, it will be in between 66 and 67 for you. You are right that the Social Security Administration is increasing the full retirement age to 67; however, this will be a gradual process over time. People who were born in 1954 and will be 61 years old this year will be the last ones to enjoy a full retirement age of 66. After that, the age will progressively increase over time until those born in 1960 or later will have to deal with a full retirement age of 67. Since you were born in 1958, your full retirement age is actually 66 years and 8 months.
QUESTION: My parents told me that they waited until they were 70 years old to file for Social Security so that they could increase their benefit amount. From what I hear, 70 is the maximum age to do this. I am 52 years old, so my full retirement age is 67. Does this mean I can do what they did and increase my benefits until I’m 71 years old?
ANSWER: It sounds like your parents waited to file late in order to earn delayed retirement credits (DRCs). If a person waits to file for Social Security benefits after their full retirement age (FRA), they will earn DRCs at a rate of 8% per year. With the current FRA of 66, a person can earn up to 32% more (8% x 4 years). (NOTE: When earning DRCs the 8% per year is NOT compounded).
The bad news for you and for other people who are facing an older full retirement age is that the maximum age to earn DRCs is still 70. Therefore, unlike your parents, you will only be able to increase your benefit amount by 24% (8% x 3 years). Of course there is always the chance that legislation can change this rule, but this is the current law on the books.