Full Retirement Age Increasing
Full retirement age keeps moving.
Many think 65 is the full retirement age (FRA). That makes sense given that it used to be and so much of our language and marketing makes that the benchmark age. Others think it is 59 ½ since that is when you can access money in retirement accounts without an additional penalty. Sadly, that is not FRA either. It is actually older and keeps getting pushed back.
You may have seen information that the FRA is changing again for people and while this may not matter for current retirees it certainly makes a big difference for those that are not yet retired. Those under 50 may see their FRA hit age 70 before too long and that can have incredible financial consequences especially as we become more and more dependent upon a social insurance program for our retirement futures.
In a clear way it makes sense that as we increase life expectancy and live longer something like full age of retirement would increase. Almost 100 years of human advancement has taken place since the origins of the program.
40 years ago when the FRA went through a major overhaul and it went from 65 to 67 the program saved 13% which sounds good for a government program. The other way to tell that story is that younger generations saw their benefits cut by 13%. Estimates are that an age change to 70 would trim benefits by 20%. The ssa.gov already warns of its own ability to pay future benefits at $800 for $1000 owed.
These sorts of short falls always require inspection on what can be done to mitigate this but what is often overlooked is who will pay the ultimate price for these changes like increasing the FRA?
It is not current retirees or those soon to retire. No, like those with pensions, the closer you are to retiring the closer you are to your guaranteed benefit. It is younger generations that absorb the burden. Some have gone as far as likening it to a Ponzi scheme citing new investors (younger taxpayers) are funding the gains of early investors (current retirees). While there can be some parallels drawn, some fundamental differences are clear between a plan to defraud people out of their money and a long standing social insurance program.
Nevertheless, it can often be a challenge with complex financial matters and systems to have an ability to completely understand the future consequences of actions now. When the program was created and paid only 2-3 years of benefits is quite different from today's benefits that may pay 2-3 decades. Old models for taxation into the program are also worth exploring (the the chegrin of the wealthy) those in the top 5% of earning may pay their entire social security tax in a matter of days or hours into the new tax year because of a cap.
Why this is important to pay attention to is that every tweak and change to social security changes its future benefit for you and “plan savings” are a nice way of saying benefit reduction for those that will be older in the coming decades.
Here is a link to the original article.
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More next time!
Jonathan