The latest increases in the retirement age for Social Security benefits are still being phased in, but there are already proposals to increase it even more.
The full retirement age, on which Social Security benefits are based, was raised from 65 to 66 for most people today and will go up to 67 for those born after 1959.
A proposal backed by major business leaders from The Business Roundtable is being debated would push the age to 70.
Liberal groups and members of Congress want to prevent increase in the retirement age, which would translate into a decrease in benefits, while a group of business leaders say something has to be done to save the Social Security system and raising the retirement age is a way to do it.
Social Security generally is not as important to the people who are clients of financial advisors, but the debate is still important to them, according to Michael Kitces, a leader in the financial services industry.
The argument is being made that an increase in the retirement age is one way to keep Social Security from going bankrupt.
The important point to keep in mind, Kitces says, is that Social Security is not going broke and retirees or near retirees should not make decisions based on that flawed assumption.
“Even if we do nothing and Social Security goes off a cliff in 20 years, benefits will only be cut by 25 percent,” says Kitces, director of research for Pinnacle Advisory Group, a wealth management firm in Columbia, Md. The bulk of Social Security payments will still be funded because the people who are working will still be paying into the system.
“Financial advisors should be talking to their clients about this, even if Social Security is not the major part of their retirement, because too many people think Social Security payments will go to zero,” he says. “Clients are talking hair-brained strategies to avoid a catastrophe that is not going to happen.”
Despite that, some advisors feel the age limit for full retirement benefits of 66 will have to increase.
“Because of longevity, raising the age limit is long overdue,” says Robert Klein, founder of Retirement Income Center in Newport Beach, Calif. “People are now retired for many more years than they used to be.”
The Business Roundtable, a group of CEOs of leading businesses in the United States, is pushing for raising the retirement age, as well as other measures that would boost funding for Social Security but cut benefits for recipients.
The changes are needed “to preserve the safety net for future generations of retirees,” the Business Roundtable says in its proposal for changes to Social Security. The current Social Security structure “is not designed to cope with America’s new demographic realities.”
However, other groups point out that the CEOs pushing for raising the retirement age and other changes that would cut benefits do not have to rely on Social Security for their retirement.
“The loudest calls for cutting grandma’s benefits are coming from CEOs who will never have to worry about their own retirement security,” says Sarah Anderson, global economy director of the Institute for Policy Studies.