The normal Social Security eligibility age, now 65, will eventually reach 67 for those born in 1960 or later. Also, taking early retirement at age 62 will become less of a good deal.
"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 affects people born in 1938, who will turn 62 in 2000 and become eligible for Social Security's early retirement option.
Those people can still choose to collect reduced Social Security benefits next year. If they do, however, their early-retirement benefit will be slightly less than in the past - 20 5/6 percent less than it would be if they wait until to retire until the usual retirement age, rather than the 20 percent reduction that has been standard before now.
For those born in 1938 who decide to retire only when they're eligible for regular Social Security benefits, the wait will be two months longer than before, until two months after their 65th birthday.
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," said Blandin. As a result, many people may be underestimating how much they need to save on their own 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 everyone 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 percent 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-percent benefit reduction if they choose to retire at age 62.
On the bright side, the yearly ratof increase in benefits for those who wait past their normal eligibility age to start collecting Social Security will gradually rise, up to 8 percent for those born in 1943 or later. It is 6 percent for someone turning 65 in 2000. This incentive is not offered beyond age 70, however.
Lawmakers preserved the age-62 early-retirement option, in particular for people who can't go on working because of health problems, but also because it is very popular. About 60 percent of workers choose to start collecting Social Security benefits at age 62.
The justification for reduced benefits for those who take early retirement is that the size of monthly Social Security checks corresponds to the total lifetime amount allotted, based on average life expectancy and time of retirement -- much like a private annuity. That means people who start collecting benefits earlier get them in smaller increments spread over a longer period of time.
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.