But I think it’s time we told folks. And then we need to clarify what all this talk about raising the so-called Full Retirement Age really means. (These issues are covered in more detail in a new issue brief from the Center for Retirement Research.)
Why Not Start Benefits When You Can?
(MORE: A Social Security Prep Checklist)
The goal is to ensure that, based on average life expectancy, people who take a lower benefit early would expect to receive about the same total amount in benefits over their lifetimes as those who wait for higher monthly benefits but start receiving them later. In other words, the claiming age affects monthly benefits but, on average, does not alter total benefits paid over a lifetime.
What is Full Retirement Age?
In 1972, Congress introduced a Delayed Retirement Credit, which increased benefits by 1 percent of the Full Retirement Age benefit for each year of delay. The result was that those who retired later got a little bonus for delaying. But a 1 percent credit did not come close to compensating for the fact that late claimers had to wait and would get benefits over fewer years.
In 1983, the adjustment was raised to 3 percent and that percentage was increased gradually to 8 percent in 2008.
At this point, the adjustment provided by the Delayed Retirement Credit is actuarially fair — that is, it keeps lifetime benefits constant for those who claim after the Full Retirement Age. In doing so, the Delayed Retirement Credit has rendered the Full Retirement Age a largely meaningless concept.
It does not describe the age when benefits are first available. That is age 62. It does not describe the age when monthly benefits are at their maximum. That is age 70. It really does not have any meaning in terms of an official retirement age.
Other Uses for Full Retirement Age
But these provisions are relatively small and do not undermine the basic fact that 70 is the age for full monthly benefits under Social Security.
So then, what does it mean that the Full Retirement Age has moved from 65 to 66 and is scheduled to move to 67 for workers born in 1960 or later? And what does it mean to increase the Full Retirement Age beyond the 67 threshold already scheduled under current law? That's a topic for another time.
Alicia H. Munnell, a MarketWatch contributor, is the Peter F. Drucker Professor of Management Sciences at Boston College's Carroll School of Management. She also serves as the director of the Center for Retirement Research at Boston College.
This article is reprinted with permission from MarketWatch.com. © 2015 Dow, Jones & Co., Inc. All Rights Reserved.