Bumping the Social Security FRA While Shielding Benefits for Low-Income Workers
A new brief co-authored by retirement industry expert and economist Andrew Biggs analyzes solutions to impending Social Security insolvency.
Biggs, a senior fellow with the American Enterprise Institute, and John Shoven, the Trione director of the Stanford Institute for Economic Policy Research, make the case for raising the federal retirement age (FRA) while protecting lower-income Americans from increases.
Absent Congressional action, the fund’s reserves are expected to be depleted by 2033 and could result in a 23% cut for beneficiaries. As a result, the Social Security Administration (SSA) would only be able to pay out 77% of benefits to retired Americans.
A key cause of the funding gap is rising longevity among retirees, Biggs and Shoven state. Figures from the Centers for Disease Control and Prevention (CDC) last year found that average life expectancy increased in 2023 by 11 months, however mainly due to fewer COVID-19 deaths. Still, age-adjusted death rates dropped in 2023 for nine of the leading 10 causes of death among Americans.
A higher number of Americans are claiming their benefits for longer than history has shown. Biggs and Shoven note that when Social Security first paid out retirement benefits in 1940, remaining life expectancy at age 65 was 13.7 years. In the current age, remaining life expectancy after age 65 has grown to 20.6 years. According to this year’s Social Security Trustees Report, by 2050, remaining life expectancies are anticipated to increase by an additional 1.4 years.
Nevertheless, rising life expectancies have not been distributed equally, Biggs and Shoven add. Wealthier Americans have been living longer and healthier lives while life spans for lower-income individuals have languished over the years. A 2013 analysis from Treasury Department Economist Hilary Waldron found that individuals between the ages of 63 to 71 with lower incomes have a roughly three times greater probability of dying compared to higher income earners.
Separate research from the Government Accountability Office (GAO) on Waldron’s analysis showed that because of differences in life spans, retirees at the 75th percentile of the income distribution would survive 17% longer relative to the average retiree, Biggs and Shoven cite.
To address this disproportion, Biggs and Shoven introduce a partial solution that raises the Social Security claiming age while curtailing any impact to lower-earning Americans. Their solution includes a staggered approach that would raise the FRA by two years for middle-income employees and four years for the highest earners while leaving benefits unchanged for low-income workers.
“In the context of Social Security reform, increasing the retirement age for low earners in effect makes them pay for a funding problem they did not cause,” write Biggs and Shoven. “To the degree that rising life spans have harmed Social Security’s funding health, lower-earning Americans largely have not contributed to that problem.”
Biggs and Shoven also propose adjusting the replacement percentages in Social Security’s benefit formula. According to the researchers, Social Security’s first replacement percentage would boost from 90% to 106%, the middle factor lowered from 32% to 28%, and the top factor cut from 15% to 7%.
These formulas could address around half of Social Security’s annual deficits and refrain benefits from changing for lower income workers. Middle-income Americans would receive benefits at 13.3% below the current formula, or equivalent to a two-year increase. Those who earn the maximum taxable wage would receive benefits at 26.7% below the current formula, Biggs and Shoven report.
Still, these remedies aren’t the end-all solution to insolvency, Biggs and Shoven add.
Implementation would likely take a decade considering past Congressional action and any increases to the FRA would only impact new beneficiaries, therefore such changes would likely not occur for another three decades. Lastly, these solutions would only reduce totally retirement benefit outlays by around 14.9%, or about half of Social Security’s annual funding gap, the researchers estimate.
Instead, Biggs and Shoven emphasize a greater need for shorter action items, like “increased payroll tax revenues, transfers of revenue from the general fund of the federal government, or other reductions to Social Security benefits that could be implemented more rapidly, such as paying smaller annual Cost of Living Adjustments (COLAs).”
More findings from the report, “How to raise the Social Security retirement age while protecting the poor,” can be found here.
SEE ALSO:
Andrew Biggs Rips Congress for Social Security ‘Fairness’ Act
2025 Social Security Trustees Report Shows 23% Benefit Cut on Tap by 2033
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.
