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Retirement Center: 70 is the new 65

Baby Boomers like to think that 60 is the new 50 or - for those who really want to push it - the new 40.

When it comes to retirement, the Center for Retirement Research at Boston College thinks 70 is the new 65.

Historically, according to CRR, 65 has been the mile-maker that we Americans have used as retirement age.
“In the 1930s, the retirement age was set at 65, which coincided with the age used by many private and public pension plans,” the center said in a paper entitled “Social Security’s Real Retirement Age is 70.”

Social Security eligibility modified over the years: Now, you can take claim your benefits at age 62, but at a reduced rate.

And the so-called full retirement age for most Baby Boomers is 66.

But, because of Social Security’s delayed retirement credit, the payout is even greater if you wait until age 70.

It’s because of the delayed retirement credit that CRR is saying 70 is the new 65.

“...the level of monthly benefits at 70 appears appropriate given the increased deductions for Medicare premiums, the greater taxation of benefits, the declining importance of the spouses’ benefit, and the diminished sources of other retirement income,” Alicia H. Munnell, director of the Center for Retirement Research, wrote in the brief.

Just do the math:

Let’s say at age 66, at your full retirement, you are eligible for $2,230 a month.

If you decide to retire at 62, the reduced monthly payment is $1,682.

But if you decide to wait until 70, it jumps to $2,944 a month.

Assume you live to the ripe old age of 95:

  • Retiring at 62 your benefits total $666,072;
  • Retiring at 66 your benefits total $776,040;
  • Retiring at 70 your benefits total $883,200.

Financial planners encourage those considering retirement to wait as long as they can to take full benefit of the delayed retirement benefit. Life expectancy, of course, is the key here, as are other factors such as one's personal finances.

The center argues: "Working until 70 is the way for people to have an adequate benefit on which they can build for a secure retirement. The shift to age 70 may be appropriate given he increase in life expectancy, health, and education or the majority of workers.”

But it penalizes those who, for a variety of reasons, have to take their benefits at age 62 or 65, something policymakers need to consider when they look at the future of the Social Security entitlement.

Said the center: “ ... constantly reducing benefit levels by increasing the Full Retirement Age is very hard on those who cannot change their retirement date. If we want to cut benefits, it makes much more sense to directly change the benefit formula. Such an approach allows for larger cuts for the higher-paid than for those at the bottom of the earnings distribution.”