In the United States, retirement is often thought to revolve around the age of 65. Most people assume they’ll begin receiving their Social Security benefits at age 65. But over time, the full retirement age (FRA) has been gradually increasing. Starting in 2025, this age will be 66 years and 10 months for those born in 1959.
This small change is often overlooked, but its implications are significant. It not only affects your retirement planning but also determines when and how you can access your Social Security benefits. Therefore, it’s crucial to understand this change and adapt your strategy accordingly.
Changes to Social Security’s Full Retirement Age
The Social Security Amendments passed in 1983 planned to gradually increase the full retirement age from 65 to 67. Under this plan, the retirement age was increased in two-month increments. Those born in 1959 will be able to collect their full benefits starting in 2025, at age 66 and 10 months.
For those born in 1960 or later, the full retirement age is now 67 years old. This means that those born in 1958 and hoping to retire at 66 years and 8 months old will now have to wait two months longer.
For those who want to retire before their full retirement age, filing early at age 62 means a significant reduction in their monthly benefit. This is approximately 29% for those born in 1959, and up to 30% for those born in 1960 or later.
Advantages of Late Retirement
If you decide to claim your Social Security after your full retirement age, your benefit can increase by up to 8% annually. If you wait until age 70, this benefit will increase by 32%. Those who wait this way see a significant increase in their monthly benefit.
The meaning of this change is clear: the retirement age is increasing, and planning has become more important than ever before, given this new rule.
The Gap Between Retirement and Full Benefits
For those who want to retire before full retirement age, there are some strategies that can bridge this gap. For example, phased retirement is a good option. This allows you to work three or four days a week instead of quitting work completely. Part-time work, such as just 15 hours a week, can help cover essential living expenses, such as health insurance or everyday needs.
It’s also important to have financial security in place. Experts recommend having 18–24 months of expenses between retirement and full Social Security benefits. This provides stability in any financial crisis.
If you have extra space in your home or driveway, renting it out can also be considered. Renting a room long-term can earn $700–1,000 per month, while driveway parking in urban areas can earn $150–300.
Part-Time Jobs and Benefits
Some national retail companies, such as Costco, Home Depot, and Trader Joe’s, also offer medical benefits to part-time employees. If you work 20–28 hours per week, you get health insurance and a source of income. These types of jobs are a good option for those waiting until full retirement age.
Tax and Financial Strategies
If you’re considering early retirement or waiting until you’ve earned full benefits, adopting tax-smart strategies can be beneficial.
First, consider withdrawing money from taxable accounts. This will allow your retirement accounts, such as an IRA or 401(k), to continue growing without any loss.
Contributions (not earnings) to a Roth IRA can be withdrawn tax- and penalty-free at any age. This provides a zero-tax option and doesn’t affect your tax planning.
It’s also important to keep your Modified Adjusted Gross Income (MAGI) low. Lower incomes may make you eligible for Affordable Care Act subsidies, which can save thousands of dollars on health insurance premiums before Medicare until age 65.
Side income options include online tutoring, pet sitting, or selling handmade crafts. These methods provide additional income while also reducing the need for full-time work.
Future Retirement Age Possibilities
Although the increase from 65 to 67 is almost complete, lawmakers are already considering raising the retirement age to 68 or 69.
Until new legislation is passed, it’s advisable to have a flexible retirement plan. Having cash reserves, part-time income, and tax-efficient withdrawal strategies provides protection against future changes.
Retirement Planning Flexibility
Retirement planning has become more complex than ever. The increase in the full retirement age is just one aspect that needs to be considered.
Although the idea of retiring at age 67 may seem like a minor change, it underscores the importance of planning and flexibility.
Building a cash reserve, considering part-time work, and adopting smart tax strategies ensure you retire when you’re ready, not when you’re too late.
Conclusion
In short, the change in the US retirement age sends a message that retirement planning can no longer be based solely on age. Financial preparedness, tax-smart strategies, and flexible planning can ensure a secure and satisfying retirement experience.
More changes are possible in the future, so planning and staying prepared for current regulations are crucial. Only a retirement plan designed with flexibility and understanding will provide you with financial independence and peace of mind in this new Social Security world.
FAQs
1. What is the new full retirement age (FRA) for Social Security in the United States?
A. The full retirement age is gradually increasing. For those born in 1959, it will be 66 years and 10 months starting in 2025. For individuals born in 1960 or later, the FRA will be 67 years.
2. Why has the Social Security retirement age increased?
A. The 1983 Social Security Amendments aimed to gradually raise the full retirement age from 65 to 67 to account for increased life expectancy and ensure the long-term sustainability of the Social Security program.
3. Can I still retire before the full retirement age?
A. Yes, early retirement is possible from age 62. However, claiming benefits early will reduce your monthly Social Security payments by up to 29–30%, depending on your birth year.
