Can the Actuarial Reduction for Social Security Early Retirement Still Be Right?

Alicia H. Munnell Steven A. Sass

IB#12-6

The brief’s key findings are:

  • Monthly Social Security benefits claimed at age 62, rather than 65, are reduced about 20 percent to avoid additional costs to the program.
  • When the reduction was set over 50 years ago, a worker claiming at 62 received benefits about 20 percent longer.  As life expectancy has risen, this worker now receives benefits only about 15 percent longer.
  • But the cost of benefits, the present discounted value of lifetime benefits, also depends on interest rates.  Rates have generally risen since the 1960s, making future benefits less costly.
  • These higher rates have largely offset the impact of rising life expectancy, suggesting that the reduction factor has proven remarkably durable over time.