Business & Real Estate

Why is 65 the national default retirement age?

Retirement in the U.S. is considered to start at age 65. Why? After all, there’s nothing sacrosanct about that particular age. Many people are capable of working well beyond 65, while others fortunate enough to have amassed sufficient wealth prior to reaching that milestone are happy to retire earlier.

According to the Social Security Administration’s website, the first country to create a social insurance program for retirees was Germany in the 1880s. The emperor at the time, William I, wrote a letter to Parliament stating that “those who are disabled from work by age and invalidity have a well-grounded claim to care from the state.” Quite a radical idea back then! The German program was initially created to begin at age 70, but by 1916, the age limit had been reduced to 65.

Life expectancy

When the U.S. federal government began development of its own social insurance program after the Great Depression, numerous state and private pension systems in existence at the time were evaluated, half of which started at age 65 and half at age 70. The German model was also considered. Actuarial studies indicated that using age 65 as the trigger could produce a self-sustaining manageable system with only modest levels of payroll taxation, so the planners settled on that age.

A common belief is that our Social Security program, introduced in 1935, was designed in such a way that people would not live long enough to collect benefits – life expectancy at birth in 1930 was age 58 for men and 62 for women. But that low life expectancy was skewed in large part due to a high infant mortality rate. More than 50 percent of males and 60 percent of females that made it to age 21 were statistically expected to live until ages 77 and 79, respectively. In fact, in 1935 there were already 7.8 million Americans ages 65 and older.

Another myth is that over the past eight decades the increase in life expectancy due to improved medical support and healthier lifestyles has become the primary threat to the financial stability of Social Security. While it is certainly a factor, the growth in the number of retirees together with the declining proportion of workers to beneficiaries has had a much larger impact on Social Security’s future financial condition.

Supplementing Social Security

During the early 1980s, rampant inflation helped drive the Social Security trust fund close to bankruptcy. As a result, Congress found it necessary to raise Social Security withholding taxes and to schedule increases in the eligible age for benefits. By 2005, the full retirement age (FRA) for Social Security had increased to 66. For citizens turning age 62 this year, their FRA will be age 66 and 6 months, and by 2027 everyone’s FRA will become 67. So at this point, it’s probably fair to say that the official retirement age in the U.S. is no longer 65.

The great thing about our society today is that there is a plethora of activities available to seniors, making retirement a potentially wonderful experience for those fortunate enough to be able to afford it. Unfortunately, Social Security these days barely covers even basic living expenses, particularly for those of us residing in the Bay Area. We will each need to supplement our Social Security income from savings, pensions and other sources if we wish to maintain our lifestyles as retirees. Which is why the importance of good retirement planning cannot be overemphasized.

Los Altos resident Artie Green is a Certified Financial Planner and principal at Cognizant Wealth Advisors. For more information, email This email address is being protected from spambots. You need JavaScript enabled to view it. or visit cognizantwealth.com.

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