For decades, the standard formulas for Social Security have been based on the age range bases of 62-65-70 for retirement and a level of payments from the government tied to those ages. At age 62 for example, if someone were to begin receiving their Social Security benefits the monthly checks would be lower than if they waited until age 65, and much less than if they began reciving payments at age 70.
However, a new study by the Congressional Budget Office (CBO) on Janaury 15th shows a very interesting dichotomy to the recent debates in Washington over raising the retirement age to keep the Social Security program solvent. In the study by the CBO, the current formula models actually validate the opposite argument here, that is, if Americans began collecting Social Security at a lower age such as 60 years instead of 62 or higher, the overall benefits given out would actually be less, even though benefits may be given out for more years in a median life span.
The following formulas are a simplified look at how this works:
Case #1
Benefits payable at age 62 = $1,000 per month
Average Life / (years of benefits) = 78 / (16 years)
Total life time benefits = $192,000
Case #2
Benefits payable at age 64 = $1,142
Average Life / (years of benefits) = 78 / (14 years)
Total life time benefits = $191,856
Case #3
Benefits payable at age 62 = $1,000 per month
Benefits payable at age 60 = $870 per month
Average life (years of benefits) = 78 / (16)
Life time benefits = $188,000 – Bruce Krastings Blog via Zerohedge
There are of course other advantages to inducing people into an early retirement, and this includes more job opportunities for younger workers, the ability for businesses to release themselves from the higher paying positions that usually occur for workers over the course of decades, and as seen above, a cumulative savings to the government both annually, and over time.
With tens of millions of baby boomers in the process of retiring through 2018, the burden on the Social Security trust will be immense, and the projected years of solvency will retract with each study that comes out. However, using the same baseline formulas Social Security currently has in place, a potential way to actually save money without making any cuts at all could be for legislators to focus on lowering the retirement age of Social Security instead of raising it, and inducing more people to retire at age 60 rather than wait for higher benefits in later years.
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