Like many developed countries, Germany faces an aging population, making its state pension system unsustainable.
To tackle the problem, a panel of economic experts has proposed a controversial idea: raising the retirement age from the current 65 to 73 by 2060, The Daily Telegraph reports. (1)
Germany is not the only country considering such a major move. Denmark plans to raise the retirement age to 70 years by 2040(2), while France will raise the retirement age from 62 to 64 years in 2023, despite strong public opposition. (3)
The United States has made a similar proposal, but its legality is unclear. In September, when asked whether the retirement age would be raised, Social Security Commissioner Frank Bisignano said “everything is under consideration.” (4) However, this comment was later withdrawn. (5)
While millions of American workers may one day face a higher retirement age, it is not a panacea to the Social Security system’s funding challenges and could come at a significant cost to many retirees.
Supporters of raising the retirement age point to the impending depletion of the Social Security trust fund and rising life expectancy as primary reasons for the move, according to the Center on Budget and Policy Priorities (CBPP). (6)
According to the Committee for a Responsible Federal Budget(7), the underlying trust fund is expected to be depleted by the end of 2032, which could result in an across-the-board benefit cut of 24%, equivalent to a cut of $18,100 for a couple retiring in early 2033.
Meanwhile, life expectancy at birth has jumped from 73.7 years in 1980 to 78.4 years in 2023, according to the Peterson-KFF Health System Tracker. (8)
Raising the retirement age would reduce the amount of benefits paid out by the Social Security Trust Fund and be more consistent with increases in life expectancy.
Opponents, however, argue that raising the retirement age is effectively a cut in benefits for all workers and would be particularly detrimental to disadvantaged workers. Senator Elizabeth Warren said retirees who turn 62 in 2034 could lose a total of $100,000 in benefits if the retirement age is raised to 69. Similarly, the CPBB found that if the retirement age were raised to 70, average lifetime benefits would be reduced by nearly 20%.
It should also be noted that life expectancy in the United States is lower than in most developed countries. As of 2023, average life expectancy at birth is about 4.1 years lower than the average in similar countries, according to the Peterson-KFF Health System Tracker.
The average lifespan of American men is expected to be 75.8 years, which means that after retiring at age 70, most men will have less than six years of their golden years before receiving benefits from the system they have invested their entire careers in.
Low-income seniors are likely to die earlier. According to a recent report from the National Council on Aging (NCOA) and the LeadingAge LTSS Center at the University of Massachusetts Boston (9), older Americans who earn less than $20,000 a year die nine years earlier than those who earn $120,000 a year or more.
In other words, raising the retirement age could prevent many low-income seniors from receiving benefits.
Still, even if your retirement age doesn’t increase over time, having a retirement plan for such a big move can put you in a better financial position.
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If the full retirement age increases to 69, 70 or higher, you should increase your personal savings to prepare for lower lifetime benefits.
Maximizing your 401(k) and IRA can help you cover any shortfalls from retirement age changes and even allow you to retire early regardless of when Social Security kicks in.
You can also plan for a longer career, which gives you more time to save and invest.
Many Americans may face early retirement due to factors beyond their control, such as health or layoffs. Putting money into a tax-advantaged account, such as a health savings account, can help you mitigate this risk and pay for medical expenses.
While it’s impossible to predict future changes to the Social Security system, you can prepare for any eventuality through a broader personal safety net and a retirement plan that is less reliant on the system.
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The Telegraph (1); The Telegraph (2); National Public Radio (3); Smart Assets (4); Wealth (5); Center on Budget and Policy Priorities (CBPP) (6); Committee for a Responsible Federal Budget (7); Peterson-KFF (8); National Council on Aging (NCOA) and LeadingAge LTSS Center (9).
This article provides information only and should not be considered advice. It is provided without any warranty of any kind.