Social Security is in the midst of significant change, set in motion more than three decades ago: The program’s full retirement age is on the move from 65 to 67. Congress made that change to help close the financing gap that existed in the program. It was also largely seen as recognition that Americans were living longer than when the program was created in 1935. Yet age is more than just a number; issues related to longer average life spans and retirement age are complex.
As the retirement age increases and as policymakers consider additional options to ensure the long-term stability of Social Security, it is important to recognize that every fix can have unintended consequences. To that end, the National Academy of Social Insurance (NASI) and AARP are teaming up to uncover and develop new ideas. This policy innovation challenge aims to ensure that with this increase in the retirement age, Americans who are unable to claim benefits later, particularly those not eligible for disability insurance, can still retire and live with dignity.
To understand the crucial need for new ideas, it’s first important to understand how we got to where we are now.
In 1983, the last time Congress made significant changes to the program, lawmakers approved an increase in the age at which people could claim full Social Security benefits. At that time, Social Security treated 65 year-olds as having reached full retirement age and therefore eligible for 100 percent of their benefits. Those who needed benefits earlier than that could opt to begin receiving a reduced benefit as early as 62. Conversely, they could realize an enhanced benefit by waiting until the maximum age of 70 to claim.
The 1983 law increased the retirement age—although it waited years to do so. As a result of the law, the full retirement age started to increase from 65 in 2002 to 67, where it will land for all Americans born in 1960 or later beginning in 2027. Importantly, the law kept the early retirement age at 62, which had the effect of reducing benefits further for those claiming at that age. Whereas historically, those who claimed at age 62 under the old rules saw a 20 percent benefit reduction from what they would have received if they claimed benefits at the full retirement age of 65, they will take a 30 percent hit compared to the benefit for full retirement age when it reaches 67.
This is problematic for a specific and large segment of the workforce—for example, anyone who does physical work, is on their feet all day, endures repetitive work physically or mentally, and so forth. Low-income workers are at particular risk. A 2016 Brookings Institution study found that workers who earn below-average incomes consistently claim benefits earlier than those with higher incomes.
On average, Americans today are living longer and therefore can theoretically work longer and save more. However, this is not true for all Americans. While most high-income Americans have seen increased longevity, that impact has not been felt across all income levels. The Brookings Institution study found a widening gap between rich and poor, with those in the top 10 percent of earners now expected to live at least 13 years longer than those in the bottom 10 percent. Additionally, many older Americans face more difficulty finding work at advanced ages and cannot work in the same types of jobs as they could when they were younger (again, think: physical work, being on one’s feet all day, as in retail or machine work). Poor health can limit the types of work people can do as they age.
Although most surveys show Americans expect to work longer, unexpected life events and other structural changes can leave them out of the workforce, and for those without real savings or sources of income, the option of when to claim Social Security benefits may not be much of a choice at all. Moreover, those that may need to claim benefits early—lower-wage workers—are also the ones more likely to have to rely on Social Security as their primary source of retirement income.
It is this group of Americans—those in their late 50s and early 60s who cannot wait to claim benefits—who are most vulnerable to the increase in full retirement. They are often not eligible for Social Security Disability Insurance (SSDI), and are also unable, based on the type of work they do or other challenges, to continue working into their late or even mid-60s. In the face of the rising retirement age—and amidst some reform efforts aimed at pushing the full retirement age even beyond 67—this group can ill afford further benefit cuts that could leave more of them in poverty.
In response to this dynamic, NASI and AARP have launched a Social Security Innovations Challenge aimed at developing a few realistic and bipartisan solutions to ensure these Americans are not financially harmed because of their inability to work longer and delay claiming benefits. Winning proposals can earn as much as $25,000.
In selecting winners via a blind review process, a panel of judges will employ a variety of criteria, including ensuring that proposals do not undermine the existing SSDI system. Winners must also participate in a facilitated discussion and consult with NASI’s policy experts to test these ideas and ensure they will not adversely impact other state and federal programs.
The first mandatory components of the challenge—the facilitated discussion and submission of abstracts—occur in March. The initial proposal is due on March 29t. If you are interested, please take a look at all the rules and requirements. The full details of the challenge can be found here.