As we live longer and healthier lives, many governments worldwide are reconsidering the age at which individuals can retire and start receiving pensions. Recently, a growing debate in the U.S. has been about raising the retirement age to 70. Here’s what it could mean for your retirement plan.
Congress has approved several new laws impacting employer-sponsored 401(k) plans but still hasn’t addressed Social Security, which the government says will run out of money by 2033 if nothing is done.
A proposal by a bipartisan group of U.S. senators, led by Maine independent Angus King and Republican Bill Cassidy of Louisiana, is among several efforts to overhaul Social Security. It would, among other things, increase the age for receiving full benefits to 70. That is expected to face stiff opposition in Congress and among senior advocacy groups.
“We’re seeing it in France right now,” says Curtis Ray, retirement planner and CEO of MPI Unlimited. “The initial reaction by the public is riots and protests because individuals work so hard, starting at 18, expecting a certain benefit to happen that they were promised. And now they talk about raising the age or cutting the benefits.”
While some argue that this is necessary to ensure the long-term sustainability of pension systems, others raise concerns about the impact on older workers, particularly those in physically demanding jobs.
Understanding Social Security Benefits
Although Congress has passed new laws that impact employer-sponsored 401(k) plans, they still need to address the issue of Social Security. Currently, Americans are eligible to claim early benefits at the age of 62, while the full retirement age is 66 or 67, depending on their birth month and year. As mentioned, Social Security is predicted to become insolvent by 2033 unless action is taken due to people living longer and receiving benefits for longer than initially anticipated.
The proposed retirement age increase will likely face opposition from Congress and senior advocacy groups. Let’s dive deeper and explore the factors that affect the retirement age debate and examine its potential implications for society and individual retirees.
How Raising The Age Will Affect Retirees
Increasing the retirement age to 70 may have significant implications for workers in physically demanding jobs and women, who already face substantial challenges in retirement savings. Physically demanding jobs can affect workers’ health and well-being, making working difficult until they are 70. Similarly, women typically earn less than men over their lifetime and have less opportunity to save for retirement.
Raising the retirement age may worsen existing inequalities and create additional barriers for these already disadvantaged groups. They may also take time off work to care for children or elderly relatives, which can further reduce their earnings and savings. Policymakers must consider the effects of raising the age and the underlying factors contributing to retirement insecurity for these groups.
Those Who Plan to Take Benefits Early Would See the Most Drastic Impact
As of December 31, 2022, the Social Security Administration reported that 9 out of 10 individuals aged 65 and older received Social Security benefits. Making them the group most likely to be impacted by an increase in the retirement age to 70. Moreover, those who elect to take benefits early receive 30% fewer monthly benefits than if they wait until full retirement age.
On the other hand, raising the retirement age to 70 leads to an 8% annual increase in benefits. However, individuals who had hoped to retire early or supplement their income may need more support as their plans may be disrupted. They may need to continue working for another three years or face financial struggles without Social Security benefits, which is even more challenging. This can be particularly difficult depending on their health and overall financial situation.
Alternatives To Raising The Retirement Age
The solvency of Social Security has been a topic of much discussion, with policymakers considering a range of proposals to address the issue. One alternative to raising the retirement age is to increase payroll taxes, which would provide additional revenue to the Social Security system.
However, this proposal has faced opposition from various groups, including retirees and politicians. The ongoing debate underscores the need for a comprehensive solution that balances the financial sustainability of the Social Security system for the American people.
Ultimately, policymakers must work together to find a solution that ensures the long-term viability of Social Security while also providing a safety net for those who rely on it.
People With Large Retirement Balances May Be Encouraged to Take RMDs Earlier
Many individuals plan to retire between the ages of 65 and 67. But factors such as job loss, and poor health, often lead to earlier retirement. Individuals can consider using taxable money from retirement accounts to bridge the gap between retirement and age. This not only helps manage finances but also reduces taxes in later years.
The Secure Act 2.0 proposes increasing the age for required minimum distributions (RMDs) from retirement accounts to 73, with a further increase to 75. RMDs refer to the minimum amount individuals must withdraw from their retirement accounts once they reach a certain age.
How Retirement Income Planning Can Help
As the debate about raising the retirement age continues, it is crucial to prepare for potential changes. Seeking advice from a Fiduciary advisor can help individuals plan for their retirement and navigate any adjustments that may arise. It is never too early to start planning, and the sooner one begins, the better off one will be. With ongoing discussions in Washington regarding retirement, it is essential to stay informed and adapt as necessary.
With years of experience and knowledge, Matthew P. Johnson is a Fiduciary you can trust with your retirement planning needs. Johnson Wealth and Income Management’s mission is to bring intelligence, integrity, and truly individualized value-added investment management and advice to affluent investors, putting the clients first, and disregarding the agendas of Wall Street and the giant firms that dominate the industry. If you have any questions regarding the potential increase in retirement age, or want to learn more about our retirement income planning services, please contact us here today to schedule a complimentary strategy session.
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