Like most of the developed world, Germany is facing an aging population that is making its national pension system unsustainable.
To solve the problem, a group of economic experts proposed a controversial idea: raising the retirement age to 73 by 2060, from the current age of 65, according to the Telegraph. (1)
Germany is not the only country considering this drastic move. Denmark is set to raise its retirement age to 70 by 2040 (2), while France raised its retirement age from 62 to 64 in 2023, despite public backlash. (3)
Similar proposals have been put forward in the US, although their legitimacy is unclear. When asked in September if an increase in the retirement age could be on the horizon, Social Security Commissioner Frank Bisignano said “everything is being considered.” (4) However, this comment was later withdrawn. (5)
While a higher retirement age could one day be on the horizon for millions of American workers, it’s not a silver bullet for Social Security’s funding challenges, and it could come at a huge cost to many retirees.
According to the Center on Budget and Policy Priorities (CBPP), proponents of raising the retirement age point to the imminent depletion of the Social Security trust fund and rising life expectancy as key reasons for the move. (6)
The underlying trust funds are on track to be depleted by the end of 2032, according to the Committee for a Responsible Federal Budget (7), which could result in an overall reduction in benefits of 24 percent, or the equivalent of an $18,100 reduction for a couple retiring in early 2033.
Meanwhile, life expectancy at birth increased from 73.7 in 1980 to 78.4 in 2023, according to the Peterson-KFF Health System Tracker. (8)
Raising the retirement age could reduce the amount of benefits paid out of the Social Security trust fund and would be more in line with increased life expectancy.
However, opponents argue that raising the retirement age is a de facto cut in benefits for all workers and is particularly bad for vulnerable workers. A retiree who turns 62 in 2034 could lose a total of $100,000 in total benefit payments if the retirement age is raised to 69, according to Sen. Elizabeth Warren. Similarly, the CPBB found that the average reduction in lifetime benefits would be almost 20% if the retirement age were raised to 70.
It should also be noted that America’s life expectancy is lower than most developed countries. Average life expectancy at birth, as of 2023, was about 4.1 years lower than the average for comparable countries, according to the Peterson-KFF Health System Tracker.
The average American man is expected to live to age 75.8, meaning a retirement at age 70 would give most men less than six golden years to enjoy the benefits of a system they’ve spent their entire careers paying into.
Low-income seniors are likely to die even younger. Older Americans who earn less than $20,000 a year die nine years earlier than those who earn $120,000 or more, according to a recent report (9) by the National Council on Aging (NCOA) and the LeadingAge LTSS Center @ UMass Boston.
In other words, raising the retirement age could prevent many lower-income seniors from ever collecting a benefit payment.
However, even if your retirement age is not increased over time, preparing your retirement plan for such a drastic move can put you in a better financial position.
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If the full retirement age is raised to 69, 70 or more, you should strengthen your staff to prepare for lower lifetime benefits.
Maxing out your 401(k) and IRA can help cover any shortfall from the retirement age change and even put you in a position 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 aside in a tax-advantaged package, such as a health savings account, can help you reduce this risk and cover medical expenses.
While it’s impossible to predict future reforms to the Social Security system, you can prepare for any eventuality with a larger personal safety net and a retirement plan that relies less on the system.
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The telegraph (1); The telegraph (2); NPR (3); SmartAsset (4); Fortunes (5); Center for Budget and Policy Priorities (CBPP) (6); Committee for a Responsible Federal Budget (7); Peterson-KFF (8); National Council on Aging (NCOA) and the LeadingAge LTSS Center (9).
This article provides information only and should not be construed as advice. Offered without warranty of any kind.
