Would a Higher Social Security Claiming Age Boost the Economy?

1 August 2023
John Manganaro

Raising the retirement age for Social Security benefits would accelerate economic growth by encouraging more work and higher levels of private savings, according to an analysis by Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget.

In addition to penning a blog on this thesis, Goldwein argued the case on a recent episode of the Open to Debate podcast, during which he was joined by Teresa Ghilarducci, a professor of economics and policy analysis at The New School for Social Research.

Ghilarducci argued the opposite position during the debate, pointing to a variety of reasons she and like-minded researchers believe raising the Social Security claiming age would neither “fix” Social Security nor have a meaningful positive effect on the nation’s gross domestic product. Among these is the fact that older Americans are often forced into retirement by health issues and age discrimination.

But, according to Goldwein, raising the retirement age would indeed benefit the U.S. economy while strengthening Social Security solvency, helping to avoid an anticipated 23% across-the-board benefit cut in just a decade.

“More flexible and delayed retirement can enhance the wellbeing of seniors, boosting their financial wealth, mental and physical health and overall happiness,” Goldwein says.

While he and Ghilarducci stuck firmly to their positions, they found common ground in the fact that Social Security remains an incredibly important program that plays a vital role — both for the financial stability of older Americans and for the stability of the U.S. economy as a whole.

That’s why both Ghilarducci and Goldwein strongly encouraged policymakers to act sooner rather than later to reform the program and ensure its long-term viability.

The Basis of the Debate

As Goldwein observes, Social Security’s normal retirement age, also called the full retirement age, is currently 67. However, seniors can and do claim at early eligibility ages as low as 62, while others delay as late as age 70, with monthly benefits adjusted upward or downward depending on collection age.

“Under the latest Trustees’ projections, Social Security’s Old-Age and Survivors Insurance trust fund will run out of reserves by 2033, when today’s 57-year-olds reach the normal retirement age and today’s youngest retirees turn 72,” Goldwein points out. “At that point the law calls for an immediate 23% across-the-board benefit cut.”

According to Goldwein and others, restoring solvency to Social Security will likely require a combination of higher revenues and slower benefit growth. In addition, Goldwein argues, raising the retirement age should be a part of the package of solutions.

“According to the program’s chief actuary, simply indexing the retirement age for longevity so workers have a constant ratio of years in work to retirement — would close one-fifth of Social Security’s solvency gap and two-fifths of its structural gap,” Goldwein suggests.

Under this framework, the retirement age would reach 69 for those retiring around 2075, he notes.

“A faster phase-in could generate further solvency improvements, while a well-designed poverty protection benefit could protect lower-income seniors,” Goldwein says.

The Impact on GDP

Goldwein says a higher full retirement age would have ancillary benefits beyond buoying the program’s funding status. Specifically, he suggests raising the retirement age would boost economic growth by promoting delayed retirement for those who are able.

“Although workers are eligible for benefits before the full retirement age and can claim benefits without retiring, the official age nonetheless sends powerful signals for when workers should retire,” he suggests. “Indeed, age 67 is the second most popular age in which workers retire, after the earliest eligibility age of 62.”

According to Goldwein, raising either the early or full age would lead some workers to extend their careers as life expectancy rises, and this additional work would lead to higher output. He cites estimates published by the Congressional Budget Office showing that, for every one-year increase in the full retirement age, this would result in nearly three months of additional work.

This would in turn boost the size of the labor force and the economy by about 0.5%, according to the CBO.

“Raising the earliest age would generate an even stronger effect,” Goldwein says. “Other groups have estimated even larger effects.”

The Impact on Seniors

One area where Ghilarducci’s and Goldwein’s positions seem to differ the most is on the impact such changes would have on the lived experiences of older Americans.

According to Ghilarducci, a significant number of older Americans earning modest wages are stuck in physically demanding jobs, and a stable retirement is an elusive goal at any age. She says it is “misguided and unrealistic” to expect these workers to keep working into advanced old age. A better way to close the retirement income gap, she argues, is to ensure that all jobs come with retirement benefits.

Goldwein, on the other hand, argues that continued work resulting from changes in retirement signals can also enhance the well-being of many seniors.

“For example, each additional year of work is estimated to increase wealth by 5% and retirement income by about 10%,” Goldwein says. “The choice to delay retirement also appears to result in better health, stronger social networks, lower rates of mortality, and other benefits that improve overall welfare and happiness.”

To be sure, Goldwein says, the choice to raise the retirement age is not without its trade-offs. He notes that each one-year increase in the normal retirement age would be the equivalent of a 5% to 6.5% reduction in lifetime benefits for most retirees.

In the end, both Goldwein and Ghilarducci also agreed on the need for better policies to reduce employer discrimination and support older workers — and Goldwein went further by calling for a broader rethink of retirement culture, pushing toward a system that allows and encourages retirement flexibility.