When French President Emmanuel Macron enacted sweeping changes to France’s retirement system in April, raising the retirement age from 62 to 64 in part to help the country’s pension system stay afloat, the overhaul sparked angry protests in the streets for weeks.
The U.S. has similar solvency concerns, but our aging population is staying in the workforce longer than any previous generation anywhere, altering the retirement and labor market for years, perhaps decades.
Is there a potential alternative to this trend?
Logistics of Lowering the Retirement Age
Any significant policy shifts in Social Security or retirement age benefits must be approved by Congress, which is pretty divided these days.
To make any changes, they would first need to consider and assess a variety of issues, including:
- Financial sustainability of Social Security
- Workforce dynamics
- Worker longevity and health
- Economic implications
“If Congress decides to lower the retirement age, which for most Americans is 67 based upon being able to claim full Social Security benefits, they will need to understand how that will impact current and future recipients,” said Eric Mangold, the founder of Argosy Wealth Management, an independent financial planning firm in Glendale, Ariz. with over $1.2 billion in assets under management.
Healthcare and Financial Sustainability
Lowering the retirement age would potentially qualify millions of Americans for Medicare at age 62, triggering deep financial implications for the federal health insurance program that covers 65.6 million Americans, roughly a quarter of all U.S. adults, according to federal data.
Enrollment has increased by 8.6 million, or roughly 15%, since 2016, heightening concerns about the sustainability of the Hospital Insurance (HI) Trust Fund and Old-Age and Survivors Insurance (OASI) Trust Fund, collectively known as the Social Security Trust Fund. In 2022, costs or disbursements of the funds exceeded income by $22.1 billion, according to the Social Security Administration.
At these accelerated rates, the HI fund would deplete by 2031, and the OASI fund would deplete by 2033. “If you raised the retirement age, this would help dramatically,” argues Evan Tunis, president of Florida Healthcare Insurance, which primarily serves Medicare patients.
The downward trajectory also carries significant ramifications for Medicare Part B, the medical insurance program accessed by half of Medicare enrollees to help cover healthcare provider services, outpatient and home healthcare, medical equipment, and other areas.
Even if the retirement age stayed the same, “the cost for Medicare Part B would have to rise dramatically—a thing no seniors want,” Tunis added.
The Workforce and Quality of Life
Lowering the retirement age would have a negative impact on the economy but perhaps a positive impact on the labor market, suggests Lowell Smith, co-founder of IRALOGIX, an IRA services provider in Pittsburgh.
“If older workers retire early, it opens up opportunities for younger workers to either get a job that would not have been available or to be promoted to a higher paying job, again opening an opportunity for someone to fill that person’s prior position,” Smith said.
But, he warned, early retirement “will result in higher taxes that could have a negative effect on employees’ net take home and could relate in a more sluggish economy, at least at the onset.”
An earlier retirement could be particularly helpful for certain professions, including first responders, emergency workers, and laborers, according to Jim Carlson, who specializes in retirement planning for firefighters.
“Lowering the retirement age could improve the quality of life for workers in physically demanding jobs,” said Carlson, a financial planner at Carlson Planning Company in Mansfield, Mass.
Another potential silver lining of leaving the workforce early is the ability to spend more time with family and loved ones, as well as pursuing personal interests and hobbies, contends Andrew Gold, financial advisor and investment strategist at Prestige Wealth Management in Southlake, Texas.
“It could also reduce workplace stress for older employees,” he added.
“However, the cons include increased financial strain on retirement systems, potential loss of experienced workers and experts, and the impact on productivity and economic competitiveness.”
Implications for Retirement Planning
Lowering the retirement age would also have implications for retirement planning and personal financial management, according to Gold.
“Individuals would need to adjust their retirement plans and begin planning earlier or saving larger sums,” he cautioned. “Retirement systems like Social Security and pensions could be strained, affecting the benefits received by retirees.”
When Argosy’s Mangold runs retirement projections for his clients, he lays out the financial implications of exiting the workforce earlier at 65 and then later in life.
“Retirement planning comes down to knowing how much money you have coming in versus how much money you have going out in expenses,” he said. “If you retire early, you will need to know if your money will last you that longer period.”
In spite of the pros and cons, the logistical realities of lowering the retirement age make any action unlikely. Especially considering that over the last several decades, Congress has actually raised the retirement age. Still, as the aging population grows, the idea is worth considering and adding to the national dialog about aging.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.