Sixty-five is commonly seen as the target retirement age in the U.S., but that could change due to several things in the works. It became the target number because the government originally made 65 the age for receiving full Social Security benefits. And as time went on, many pension plans also geared their benefit programs toward age 65.

According to data from the Center for Retirement Research at Boston College (CRR), a good part of the timing for retirement is also due to Medicare eligibility, which begins at age 65. That link wasn’t always clear, CCR says in a report, entitled How Important Is Medicare Eligibility In The Timing Of Retirement?

But the gradual rise of Social Security’s full retirement age to 66 (it rose incrementally from 65 in 2002 to 66 in 2008) has decoupled the two programs and shown a clearer link between Medicare and when people retire. That’s a factor in analyzing who’s likely to retire early, and that’s important because a person’s retirement age affects how much Social Security benefits he or she ultimately collects.

The CRR report states the Medicare link doesn’t impact the retirement decisions for people with employer-provided retiree health insurance (RHI), a benefit that seems like a fantasy in the current era of belt-tightening, but which was once fairly prevalent during the heyday of unions. “Given the decrease of unions and the general decrease in employer generosity with retirement plans and benefits, I don’t think we’ll see RHI that often anymore,” Matthew Rutledge, a CRR research economist and a co-author of the report, says in an interview.

But receiving Medicare benefits beginning at age 65 does matter for people with employer-provided health insurance but not RHI––it gives them an incentive to keep working until age 65 in order to maintain health coverage until Medicare kicks in. CRR’s report finds that workers without RHI are likely to retire in the month they turn 65 and become eligible for Medicare. CRR says that accounts for roughly 30% of the growing number of people who retire at age 65 even though they can’t start receiving full Social Security benefits until age 66.

For a long time, Rutledge says, 62 was the average retirement age in the U.S. That was fueled by people taking Social Security benefits early at age 62.
But Rutledge says the average retirement age has risen to 64. That’s because older folks are healthier and more inclined to keep working; many people recognize that rising longevity means they’ll need more money to support a potentially long retirement; and some older employees feel compelled to work longer to rebuild nest eggs damaged during the Great Recession.

There’s been much debate about raising the eligibility age for full Social Security benefits to help shore up the program’s shaky finances. Ditto for Medicare, where some proposals call for boosting the eligibility age to 67. If either or both happened, that could cause more people to work longer.

But the Affordable Care Act––a.k.a. Obamacare––could offset that. “If the health care exchanges are soundly implemented, it would give people another option to get their health insurance coverage,” Rutledge says. “And if so, they [workers near retirement age] wouldn’t have to continue in their jobs to maintain health insurance.”

The caveat, Rutledge adds, is that earlier retirees would stop paying into Social Security through payroll taxes. “If you retire earlier, you’re reducing the amount of money you’ll ultimately get from Social Security.”
––Jeff Schlegel