Social Security Changes to Be Felt in 2000

Beginning in January, the first Americans will be affected by changes in Social Security rules that over the next 20 years will slowly reduce benefits for early retirees and push the normal retirement age to 67, up from 65.

The changes have been in the works for decades--the legislation was passed in the Carter and Reagan years--but pollsters say most people have no idea that they are imminent.

The normal Social Security eligibility age--now 65--eventually will reach 67 for those born in 1960 or later. Although benefits will still be available at age 62, early retirement will become a progressively worse deal each year for the next 15 years.

“Americans are living longer and healthier lives, which is very good news, but the system needed to create greater incentives to work longer in order to continue to function,” Social Security Commissioner Kenneth S. Apfel said.

The changes initially affect people born in 1938, who will turn 62 in 2000 and become eligible for Social Security’s early- retirement option.

If those people elect to start collecting Social Security benefits next year, their early-retirement benefit will be slightly less than in the past--20.83% less than if they wait until age 65, rather than the 20% reduction that had applied in the past.

That means the typical person retiring at age 62 in 2000 will receive $721 a month, rather than the old formula’s $728.

For those born in 1938 who decide to retire only when they’re eligible for full Social Security benefits, the wait will be longer than before: They’ll have to be 65 years and 2 months of age.

Although the Social Security eligibility and benefits changes have been planned for 16 years, most Americans either don’t know they’re coming or don’t understand how the changes will affect their retirement plans.

A poll of Americans over age 25, taken this year by the Employee Benefit Research Institute, found that almost six in 10 think they will be eligible for Social Security benefits before they actually will be.

Don Blandin, president of the American Savings Education Council, said people attending retirement seminars he conducts across the country are shocked when he tells them they won’t be eligible for full Social Security benefits at age 65.

“I go through that and hear a lot of gasps in the room,” Blandin said. As a result, many people may be underestimating how much they need to save on their own if they want to retire in their early 60s, he said.

New annual Social Security statements mailed starting this fall to working Americans about two months before their birthdays are meant to help people understand the coming changes. The letters tell people their eligibility ages for normal Social Security benefits and their benefit levels if they choose earlier or later retirement.

Starting with people born in 1938, the normal Social Security eligibility age will rise by two months for each year, until it reaches 66 for those born in 1943. It then stays at 66 for those born through the end of 1954.

If people whose normal eligibility age is 66 choose early retirement at age 62, their benefits will be 25% lower.

After that, the two-month-a-year climb in the retirement age starts again, until it is finally capped at 67 for those born in 1960 or later. People whose normal retirement age is 67 will see a 30% reduction in benefits if they choose to start collecting at 62.

On the bright side, the yearly rate of increase in benefits for those who wait past their normal eligibility age to start collecting Social Security will gradually rise, up to 8% for those born in 1943 or later. It is 6% for someone turning 65 in 2000. This incentive is not offered beyond age 70, however.

The retirement-age increase was agreed to in 1983 by Republican President Ronald Reagan and Congress, then controlled by Democrats, as one of several changes designed to protect the Social Security program.

Lawmakers reasoned that with life expectancies rising, Americans could manage to work a little longer.

They preserved the age-62 early-retirement option for people who can’t go on working because of health problems and because it is extremely popular. About 60% of workers choose to start collecting Social Security benefits at 62.

The eligibility age for Medicare, the nation’s health insurance program for the elderly, is not affected by the Social Security changes and will remain at 65.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Pushing Back the Benefits

The retirement age for receiving full Social Security benefits will gradually rise. Here is how it changes:

*--*

Year of birth Eligibility age for standard benefits 1937 and earlier 65 1938-1942 65 +2 months for each year after 1937 1943-1954 66 1955-1959 66 +2 months for each year after 1954 1960 and later 67

*--*

* If people whose normal eligibility age is 66 choose early retirement at 62, their benefits will be 25% lower than at present. Those whose normal retirement age is 67 will see a 30% benefit reduction if they choose to retire at 62.

* On the bright side, the yearly rate of increase in benefits for those who wait past their normal eligibility age to start collecting Social Security will gradually rise, up to 8% for those born in 1943 or later. This incentive is not offered beyond age 70.

Source: Associated Press