Social Security Reform: Raising the Retirement Ages Would Have Implications for Older Workers and SSA Disability Rolls

Life expectancy has increased over the last several decades, and by 2050 persons age 65 or older will account for more than 20 percent of the total U.S. population, up from about 13 percent in 2000. Without significant changes in retirement decisions, these improvements in longevity are expected to lengthen the average number of years that Americans spend in retirement and contribute to the expected long-term revenue shortfall in the trust funds for Social Security's Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) programs (collectively knows as OASDI). The 2010 report from the Social Security Board of Trustees projects that the trust funds' assets will be exhausted by 2037. In light of the long-term trust fund solvency issues and increased longevity, many have suggested changing the earliest eligibility age (EEA) at which workers first qualify for retirement benefits, the full retirement age (FRA) at which they receive full benefits, or both. By reducing monthly benefits for those taking early benefits or delaying eligibility, raising the retirement ages could create an incentive for workers to delay retirement, thus earning more income and possibly saving more for retirement. However, raising the retirement ages would likely increase the number of workers applying for and receiving DI benefits. More DI applications and beneficiaries would reduce some of the financial savings for the combined OASI and DI trust funds and increase the Social Security Administration's (SSA) disability caseload, which already faces a serious backlog. In this context, Congress asked us to address issues related to the potential impact of raising the EEA or FRA on the DI program and on older workers--in general, workers in their sixties, but in particular those approaching age 62, just prior to becoming eligible for retirement benefits. This report answers the following questions: 1) What do the health, occupational, and demographic characteristics of those near retirement age indicate about the potential for these individuals to continue working at older ages? 2) What is known about the effect a change in Social Security's EEA and FRA could have on retirement and disability benefits and applications for disability? 3) What policy options might help mitigate the effects of increased retirement ages on those who may not be able to work longer?