Low earners who claim early get overcharged, while high earners who claim later are rewarded. OPINION
The option to claim Social Security early was introduced over 60 years ago, when Congress set 62 as the program’s “Earliest Age of Eligibility.” To keep lifetime benefits constant, on average, those claiming at 62 receive 20% less in monthly benefits than if they had claimed at 65. The option to claim between 65 and 70 on an actuarially fair basis stems from the 1983 Social Security Amendments, which gradually increased the annual “delayed retirement credit” from 3% to 8%.
To estimate the magnitude of the required adjustment requires comparing the cost of lifetime benefits for early versus late claiming. If the costs to the government are equal — that is the ratio of the two costs is 1.0 — then the adjustment is actuarially fair. Figure 1 shows that the ratio of age 62 costs to age 65 costs, which was close to 1.0 in 1960, is expected to be 0.94 in 2020.
One final note: The stylized fact that high earners live longer and claim later adds a distributional consideration to these findings. At the simplest level — taking the adjustments as given — low earners claim early and are overcharged for that privilege, and high earners claim later and are rewarded roughly correctly.
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