Equity Implications of the Rising Full Retirement Age and Social Security Communications: An Analysis of Past and Future Disparities in the Economic Security of Retirees

Abstract

The Social Security Amendments of 1983 raised the full retirement age (FRA), the age at which claimants receive an unreduced monthly benefit, from 65 to 67. However, this change was gradually implemented, with the first increase from 65 to 66 phased-in between 2001 and 2009, and the second increase to 67 currently underway. Given that Social Security benefits have an equalizing effect on the wealth distribution, the rising FRA represents a reduction in retirement wealth borne by the population most reliant on Social Security benefits. In this article, we use the Health and Retirement Study, a nationally representative panel survey of individuals 51 and older in the United States, to estimate how income and wealth varies by race and ethnicity for households facing different FRAs. In particular, we focus on how income and wealth racial/ethnic disparities changed from age 60 to 70 for households with age 65 FRA versus 66 FRAs and provide insight on how the currently rising FRA may affect disparities into retirement. Our central finding is that age 60/61 socioeconomic characteristics explain the vast majority of age 70/71 economic disparities; however, age 60/61 disparities are increasing in more recent cohorts. Social Security income lowers disparities at age 70/71 relative to other income sources, but earnings and capital income disparities remain substantial. Absent policy intervention, our findings suggest racial/ethnic disparities in retirement will widen for workers approaching retirement.