Here’s why retirement age matters for Social Security and Medicare

62, 65, 67, 70.

All these ages are important when it comes to Social Security and Medicare.

And these ages are also targets in the contentious debate over how to shore up the shaky finances of the massive entitlement programs.

Republican presidential candidate Nikki Haley recently zeroed in on raising the retirement age for Americans in their 20s as a way to reform Social Security, saying it should match their life expectancy. The controversial position was echoed by GOP Rep. Nancy Mace of South Carolina on CNN’s “State of the Union” last Sunday. Neither said what the new retirement age should be.

Many folks may think that people can start collecting their full Social Security benefits at age 65, which was the retirement age for decades. But Congress changed that as part of its 1983 overhaul of the entitlement program.

Lawmakers gradually increased the full retirement age – the first to be affected were people who turned 65 in 2003. Americans born in 1960 or later must wait until they turn 67 to collect their full benefits.

However, unless Congress acts, neither Social Security nor Medicare will be able to provide their full benefits within the next decade or so.

Social Security’s trustees said last year that the program’s combined retirement and disability trust funds will be depleted in 2035, at which time Social Security will only take in enough income to pay 80% of scheduled benefits. A more recent forecast by the Congressional Budget Office pegged the date at 2032 for the depletion of the retirement trust fund.

Meanwhile, Medicare’s trustees said last year that its hospital insurance trust fund, known as Part A, would drain its assets by 2028. At that time, it will only be able to pay 90% of benefits. The CBO put the date at 2033.

The retiring of the baby boomers has placed a lot of stress on the two programs. As the US population ages, there are fewer workers paying into the programs and supporting the ballooning number of beneficiaries, who are also living longer.

In all, nearly 66 million retired workers, their dependents and survivors, disabled workers and their dependents receive monthly Social Security payments. For many retirees, the benefits make up the bulk of their income in their older years.

And more than 65 million senior citizens and people with disabilities are enrolled in Medicare.

Proposals to increase the retirement age typically focus on when people should be able to collect their full benefits, though some plans also float bumping up the ages for early retirement and Medicare eligibility.

Proponents argue that Americans are living longer and should be able to remain employed longer. Opponents say that some workers, particularly those in physically taxing jobs, need to have the option to retire at earlier ages.

Increasing Social Security’s retirement age is a cut in benefits, however people couch their support of this method to strengthen the program, said Alicia Munnell, director of the Center for Retirement Research at Boston College.

“People say the following: We can do it either through benefit cuts, tax increases or raising the full retirement age,” said Munnell, who favors bringing in more revenue to replenish the trust funds. “There’s no third option – there are only benefit cuts or tax increases. Raising the full retirement age is a mechanism for cutting benefits.”

Delaying retirement benefits is a hot-button topic not only in the US but in Europe as well. The French government is currently forcing through controversial plans to raise the country’s retirement age from 62 to 64, which have ignited weeks of protests and strikes.

Age 62: Americans can file for Social Security benefits as early as age 62. But that will result in a lifetime reduction in payments.

For instance, those whose full retirement age is 67 will receive only 70% of the benefit if they claim at age 62.

If the full retirement age is increased, it could mean an even larger cut in benefits, depending on how the legislation is written.

Congress gave women the ability to collect a reduced benefit at age 62 in 1956 and extended the option to men in 1961.

Fewer people are filing for early retirement benefits. Some 25% elected to do so in 2021, down from 52% in 2005, according to an American Academy of Actuaries review of Social Security Administration data.

Age 65: This is when one can enroll in Medicare coverage. Most people sign up for both Part A, which covers hospitalizations, skilled nursing facility care, hospice care and some home health care, and Part B, which covers doctors’ visits, outpatient care, medical supplies and preventive services.

The initial enrollment period begins three months before one turns 65 and ends three months after one’s birthday month. Those who wait to sign up can face hurdles, including having to pay a penalty or suffering from a gap in coverage.

Age 65 was also the average age of people electing Social Security benefits in 2021 – 65.1, to be precise, according to the academy.

Age 67: Americans born in 1960 or later must wait until age 67 to be eligible for their full Social Security benefits.

This age is typically the target of reforms, with some options raising it to age 70 for future retirees. Doing so could wipe out about a third of the Social Security trust fund’s 75-year deficit, according to Munnell.

Raising the full retirement age would bring it more in line with changes in life expectancy, which has increased by about six years since Social Security was established in 1935, said Linda Stone, senior pension fellow at the academy.

Age 70: Those who delay their retirement until age 70 will receive a larger monthly Social Security benefit, thanks to a credit Congress created in 1972.

For instance, workers born in 1960 can receive 124% of their benefit if they don’t sign up until they turn 70.

However, waiting beyond that age will not further increase their monthly payments, so the Social Security Administration recommends folks apply when they hit 70, even if they are still working.

Few people delay collecting their Social Security benefits, though the share is growing. Some 21% elected to take benefits after their full retirement age in 2021, up from 5% in 2005, according to the academy.