Editor’s Note: Journalist Philip Moeller is here to provide the answers you need on aging and retirement. His weekly column, “Ask Phil,” aims to help older Americans and their families by answering their health care and financial questions. Phil is the author of the new book, “Get What’s Yours for Medicare,” and co-author of “Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security.” Send your questions to Phil.
Older Americans depend greatly on the three big federal benefit programs: Social Security, Medicare and Medicaid. All have been targeted for significant changes by either President Donald Trump, his cabinet appointees or congressional Republicans. President Trump’s call for quick congressional action on his campaign promises will encounter a much longer legislative process.
So we will be in limbo for some time in terms of actual Congressional action. In the meantime, I will be providing periodic background reports to help you understand how these key benefit programs work and how they and you would be affected by the changes being discussed in Washington.
Today’s topic is about what would happen if the formal retirement dates for Social Security and Medicare were extended by two or perhaps even three years. Leading Republicans already have included such proposals in their evolving legislative packages. President Trump has not revealed yet where he stands but, at least formally, has not moved away from his campaign promises to leave both programs in tact.
The current eligibility date for Medicare is age 65, although people with disabilities can apply for the program at any age. Medicaid eligibility is based on need, not age. There are about 55 million people on Medicare, including 9 million disabled people under age 65. About 10 million of the 70 million people on Medicaid are lower-income, “dual eligible” Medicare enrollees.
Social Security’s version of retirement age, known as the full retirement age, is currently 66. Many people retire earlier: Normal retirement and spousal benefits begin as early as age 62, and survivor benefits begin at age 60. Benefits claimed prior to full retirement age are hit with early retirement or survivor reductions. Full retirement age already is set to begin rising in four years for people born in 1955 and later, and it will reach 67 in two-month increments for people born between 1955 and 1961.
Supporters of extending these dates to age 68, 69 or even 70 often point to impressive longevity gains that have added years to typical life spans. While this overall statistic is true, longer lives are being enjoyed mainly by wealthier people, and the longevity gap between those on the bottom and the top of the socioeconomic scale appears to be growing.
A study that looked at life expectancy at age 50 based on socioeconomic status found women born in 1920 who were were in the highest economic group lived nearly five years than those in the lowest group. This gap grew to 10 years for women born in 1940. Among men born in 1920, the gap between the rich and poor was than six years, while the gap between those born in 1940 had risen to a dozen years. For those in the lowest economic groups, life expectancy did not grow during the 20 years separating the two research groups.
What does this mean for senior benefits? Increasing the retirement age might not matter much for wealthier people, but it could be a big problem for lower-income folks. And it is precisely the lower-income groups that rely most heavily on Social Security and Medicare. In particular, people claiming Social Security at younger ages tend to have physically demanding jobs that limit their careers.
Increasing retirement ages without adjusting programs to recognize the needs of lower-income beneficiaries would thus amount to a real cut in benefits. But it’s a cut that might be invisible if the unequal longevity gains are not considered.
Raising the Medicare eligibility age would extend the amount of time people would need to have other types of health insurance, either from employers or from private insurance companies. With lower-income workers being more likely to retire at younger ages and less able to afford health insurance, this would represent a big practical problem.
Social Security tries to calculate benefits so that a person who begins benefits at age 62 will receive as much money over his or her lifetime as if they delay taking benefits until age 70. For this approach to work, benefits taken at earlier ages must be reduced compared with benefits taken at full retirement age or later.
That means simply extending the full retirement age would penalize people who take benefits early, as well as reduce the maximum benefits that people who defer taking Social Security could earn.
Right now, a person who begins claiming their retirement benefit at age 62 will receive only 75 percent as much money each month as if they waited until their full retirement age of 66 to begin claiming their benefits. A person claiming a spousal benefit at age 62 would get only 70 percent as much each month as if they waited until full retirement age to claim.
Under current law, extending the full retirement age to 67 would further reduce benefits for people who claimed at age 62 — to 70 percent for retirement benefits and 65 percent for spousal benefits. Further raising the retirement age while leaving the current benefit formula in place would further increase the early claiming penalty for early claimants.
There would be a comparable reduction in the financial benefit of waiting to file until age 70, which is now the age at which retirement benefits peak (spousal and survivor benefits peak at full retirement).
With a full retirement age of 66, a person can earn delayed retirement credits of 8 percent a year for up to four years before they file at age 70. When the full retirement age is increased to 67, they will be able to gain only three years of such gains. And if the full retirement age is further increased, without a change in the age at which maximum benefits are earned, the benefits of delayed claiming will be further reduced.
Congress is free, of course, to raise retirement ages and mandate changes in how benefits are calculated. But simply raising retirement ages without such adjustments would amount to a benefit reduction that might be invisible to people who don’t understand the inner workings of these programs.
Should you take benefits early? Why aren’t your chiropractic appointments covered by Medicare? Phil answers more questions about Social Security and Medicare in this Q&A.