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For Retirement Planning, Get the Spirit of 76

On Social Security's 80th birthday, 76 is key, says a 'Falling Short' co-author

By Charles D. Ellis

(Since August 14 is the 80 anniversary of the signing of the Social Security Act, Charles Ellis, co-author of Falling Short: The Coming Retirement Crisis and What to Do About It, has written this timely article about Social Security retirement benefits in 2015. –Ed.)

For retirement planning, the key number to remember is no longer 65. It’s now 76.

Most people have never heard of 76 in discussions about retirement, have no idea that 76 is important to them or do not know what 76 can mean to them. But, we all sure should, because understanding 76 is — for most of us — critical to making the right decisions about retirement.

Let me start with 65 and explain why it’s no longer meaningful to Social Security.

Where The Magic Age of 65 Came From

For 80 years, the Social Security Administration has been emphasizing 65 as the key to retirement planning, using the compelling, unambiguous descriptive term Full Retirement Age in every description of what 65 really means.

Truth is, retirement at 65 was set well over a century ago, in the 1890s in Germany, to deal with a major PR problem concerning railroad accidents.

Over many years of hard work and difficult negotiations, Chancellor Bismarck had persuaded the previously independent states of Bavaria, Saxony, and others to give up their independence and join with Prussia in a pan-Germanic Federation to be a great power. To symbolize the advantages of Federation to millions of German people, Bismarck wanted to focus attention on the new and better in ways that would touch each person's life and attract attention. What could be better than the new technologies of the era: telegraph and railroads?

So telegraphy was combined with the mail service into a swift, sure system of communications. Your letter would be certain of delivery anywhere within the Empire within a single day. High-speed railroads would not only move coal, iron ore and limestone to make steel, but would bring fresh vegetables to the cities from the farmlands and take city dwellers to the countryside for holidays. So far, so good.

To persuade large numbers of workers to leave the farms where they worked and switch to the new-fangled railroads, Bismarck had to make a special pledge: guaranteed employment for life!

While the average life expectancy then was about 45, some workers lived longer and some, much longer. Old men could not handle the heavy lifting of ties and stone to build rail tracks, so they were given light work such as manning the switches. But, on a warm summer's day, with three or four hours between switching tasks, an elderly man might take a short nap, oversleep and forget to throw the switch. And that could result in a train crash, as happened several times.

Consequently, Bismarck’s whole Federation concept was at risk because his chosen symbol was backfiring. So he sent a team of analysts to come up with a solution — a low cost solution — which they did. Since the accidents could be traced to a few superannuated workers, the solution was to continue paying them, as promised, but not to work. This solved the Baron's PR political problem because the awful accidents stopped and the German Federation flourished.

A few decades later, in the 1920s, railroad regulation was a major concern of Congress. Study groups went all over the world to learn lessons from other countries, particularly Germany, which had reputedly the best railroad system in the world. Its idea of retirement at 65 had appeal for safety and political reasons, so it was adopted in the Railroad Retirement Act of 1934, which guaranteed railway workers full pensions at 65.

Enacting Social Security in 1935 was very difficult, so it helped to have a legislative precedent on the important matter of the age for paying retirement benefits. That’s why Congress settled, after some discussion of ages 68 and 70, on age 65.

Why 65 Isn't Meaningful Anymore

Well, a lot has changed in 130 years and it’s long past time to reconsider 65 as retirement age.

We live much longer — over 30 years longer — thanks to advances in health care and diet. Does it really make sense to allocate all those extra years to retirement?

As my Falling Short co-author Alicia Munnell (Director of the Center for Retirement Research at Boston College) has explained, if we rebalance to the same proportions of years at work and years in retirement as we had in 1935 when Social Security was launched, we would move the fulcrum to just 70.

Actually, the fulcrum is already headed for a Full Retirement Age of 67 as recommended by the 1983 Greenspan Commission to reform Social Security.

While almost nobody has noticed, even the Social Security system is dropping old 65. Today, the Full Retirement Age is 67 for anyone born in 1960 or later, 66 for those born between 1943 and 1954 and somewhere between 66 and 67 for those born between 1955 and 1960.


These days, many people start claiming Social Security benefits before 65. The average age is under 64. So why should you focus on 76?

The Importance of 76

First, 76 is not an age. It is a benefit, a very big benefit.

Each of us can, if we want, claim Social Security benefits at age 62. Or, we can begin claiming later, but not later than 70. Anyone who decides to defer claiming past age 62 will get 8 percent more in benefits for each year of deferral. That means, with compounding, anyone who defers for the entire eight years, from age 62 to age 70, will get 76 percent more in benefits.

So by working for eight more years, you can get 76 percent more in Social Security benefits that are guaranteed by the U.S. Government, protected from inflation and will keep coming for as long as you live.

For most people, this is the best financial opportunity they will ever have.

As a nation, we should make sure everyone knows that 76 percent more awaits them if they keep working until age 70.

What This Means for 401(k) Investors

For those with 401(k) retirement plans, there is another reason to continue working: The median 401(k) account is only $110,000, which won’t be nearly enough to replace 70 percent of your pre-retirement income for 20 years of retirement.

But with eight more years of not taking money out of the plan and eight more years of additional contributions to the plan and eight more years of investment returns, the average 401(k) account would more than double — and so would the annual payouts.

So the key to helping millions of American workers escape old age poverty and have enough for a decent retirement is to celebrate the power of 76. Then, each person making that important decision about when to retire will have the all-important freedom to make a well-informed free choice.

The importance of informed free choice has been at the heart of American values since the Declaration of Independence and 1776. Growing up in Marblehead, Mass., I always think of that iconic painting, The Spirit of '76, which hangs in the town hall and symbolizes the importance of free choice.

Appropriate, isn’t it?

Charles D. Ellis is author of The Index Revolution  and 17 other books. The former Managing Partner of Greenwich Associates, the international strategy consulting firm he founded, Ellis advises large institutional investors, government organizations and wealthy families. He is also an investment committee member at Rebalance IRA. Read More
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