1. 6 Bryan, Pendleton, Swats & McAllister / September – October 2013
The following opinion piece by Ken Hohman, managing
normal retirement age, the impact these differences have
on our retirement expectations, and possible solutions to
alleviate the confusion.
{Imagine Tevye from Fiddler on the Roof speaking.}
traditions to answer this question—the scripture
according to Social Security and Medicare said you
should retire at age 65. But now, our governmental
traditions are not so clear and retirement is in chaos.”
Tradition
the confusion:
Normal Retirement Age (NRA) is the age at which you
Early Retirement Age
for the fact you are retiring early (and will therefore
receive retirement payments for a longer period of time).
From the outset of Social Security in 1935 (and Medicare
that 65 was the appropriate NRA and 62 was an
that many state government retirement plans opted for an
earlier NRA based on 20, 25, or 30 years of service).
whose bright idea was it to introduce half years to the
with one side arguing it should be age 70, the other
insisting that it must be 71. Finally an exasperated
moderate brokers a deal to split the difference.)
amended Social Security to change the NRA for future
generations of Social Security recipients to age 66 or 67
depending on year of birth. (See the following table for
seemed to be lost on the general public, and it is apparent
30 years later that traditions die hard.
Social Security Full Retirement Age
Year of Birth* Full Retirement Age
1937 or earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67
Pay attention to the signals
Why did the general public collectively yawn when this
rather dramatic change was made to Social Security?
or because the change did not immediately affect anyone
current Social Security normal retirement age of 66 for
those retiring now, 49% of males and 55% of females
number of people probably did not realize that this change
at age 62 regardless. What they didn’t realize (and perhaps
years early), whereas when the NRA was 65, the reduction
was only 20% (for a three-year early payment).
been changed at the same time, people would have taken
Signaling for RetirementAge
by Kenneth F. Hohman,

2. Argument
Rebuttal
decision to raise NRA in order to provide an appropriate, uniform retirement policy related to retirement age should be
Argument
Medicare-eligible group (those age 65-67) has much lower medical costs than older Medicare participants.
Rebuttal This is certainly true, but again, this is a policy statement about a proper retirement age expectation for society; it
is not about cost. The healthcare cost for those age 65-67 will not disappear—that cost will simply transfer to some
other part of our society (the individual or their employer).
Argument Raising the NRA is unfair to those in physically demanding jobs where it is not feasible to expect someone
to work to age 65.
Rebuttal An employer can set a plan’s normal retirement age that is less than the ERISA NRA (although this has little impact
in a 401(k) plan). So this issue relates primarily to our social insurance programs. A sound national retirement
which would allow the individual to keep working in less physically demanding position.
Argument Raising the NRA based on mortality improvements is unfair to lower-income groups who have experienced less
mortality improvements than higher-income groups.
Rebuttal It is true that mortality improvements have been greater for higher income groups; however, any longevity index
used to adjust NRA in the future could (and should) be tied to the mortality statistics for the groups for which
society has a reasonable retirement concern.
Argument Raising the NRA will keep older workers in the job market and limit possibilities for younger workers.
Rebuttal This is certainly a possibility and is a much greater concern with unemployment near 8% than it was when the rate
in the workforce regardless of what they understand “normal” retirement to be.
Bryan, Pendleton, Swats & McAllister / September – October 2013 7
messing with Social Security is generally tantamount to
political suicide, so they wanted to keep this change as
low-key as possible; ergo, no signals were given.
country, have a national retirement policy that is
outdated, and we need to establish a new, currently
comprehensive rewrite, there appears to be little political
appetite for such a project, but perhaps addressing the
NRA issue will springboard into a broader policy debate.
What are the policy arguments in favor of raising the
NRA signals?
1. Society needs its members to remain productive in the
workforce for an appropriate number of years in order
established, and we expect these improvements to
continue – this has led to a shift in the ratio of
expected years in retirement to years in the workforce.
system to a 401(k)-centric system has made
retirement at age 65 less certain.
sector pension plans with Social Security would deliver a
clearer message about our society’s expectations for
The proposal
for those born prior to 1961 will be as set forth in the
current Social Security law. For those born after 1960,
the NRA would increase (or decrease) each year based
mortality improvement.
The arguments against (and the rebuttal)
Let’s examine a few of those arguments.

3. NRA—and a means for adjusting the NRA going
is generally seen as a cost-saving ploy, but it doesn’t
the NRA, and cost should be (but likely will not be)
on wealth will also come into play. We have seen how
politicized this has become—what amount of income/
societal standpoint, do we care about signaling an
appropriate retirement age to those who clearly have
were a rich man . . . no one would have to worry about
my retirement.”
In perspective
delicate balance between individual equity versus the
goals of society as a whole. From a societal standpoint,
we must decide upon the appropriate relationship
between years in the labor force and years in retirement
responsibility to:
1. set expectations by providing consistent signals,
2. assure that federal social programs (i.e., Social
Security and Medicare) are funded appropriately, and
3. make reasonably certain that retirement at the signaled
NRA is feasible for the vast majority of our members.
Signaling an appropriate NRA for retirement is a
tradition in need of updating. Without it, our retirement
Kenneth F. Hohman, FSA, EA, FCA, MAAA
retirement industry, 35 as an actuarial
consultant with BPS&M. His primary
area of expertise is in the design,
funding, administration, and
clients comprise a variety of employers, including Native
Practice Group and has extensive experience in
assessing the feasibility of establishing ESOPs, including
repurchase liability studies. He has presented at the
annual Enrolled Actuaries Meeting on various employee
topics, and has spoken at various venues, including IRS
internal training seminars. Ken is the managing principal
The BPS&M Pension Liability Index
Updated as of September 30, 2013
by
volatility in pension plan liabilities. BPS&M has
established a set of liabilities and applied the yield
curves to those liabilities in order to create the indices
used to demonstrate the effect of interest rates on plan
standards, which are in general use:
Act (MAP-21), which provides an expected short-term
decrease in the minimum funding requirements for
pension plans beginning with the 2012 plan year (for
more information go to www.bpsm.com, click on News
and Publications, and read our July 2012 Alerts,
MAP-21, Pension Funding Relief ).
Bryan, Pendleton, Swats & McAllister / September – October 2013