Goodbye to Retirement at 67 : For generations, the age of 65 has been a cultural milestone for retirement in the United States. However, a long-planned change to the Social Security system is now taking effect. The Full Retirement Age (FRA)—the age at which you can receive your full Social Security benefits—is increasing. For Americans born in 1959, the FRA is now 66 years and 10 months, a change that took effect in 2025. This shift, while gradual, has significant implications for retirement planning and when you choose to claim your benefits.
What is Changing and Why?
This change was set in motion by the 1983 Social Security Amendments to account for increasing life expectancy and to ensure the program’s long-term financial health. The increase is being implemented in gradual, two-month increments.
- For individuals born in 1959, the Full Retirement Age is 66 years and 10 months.
- For anyone born in 1960 or later, the Full Retirement Age is now 67.
This means that if you were expecting to retire at the previous benchmark of 66 years and 8 months, you may now need to wait a bit longer to collect your full benefits.
The Financial Impact of Claiming Early or Late
The age at which you choose to claim Social Security directly affects your monthly benefit amount. Claiming as early as possible at age 62 results in a permanent reduction of your benefits—by about 29% for those born in 1959 and up to 30% for those born in 1960 or later. On the other hand, if you delay claiming benefits past your Full Retirement Age, your monthly payment increases by 8% for each year you wait, up until age 70. This can result in a benefit that is up to 32% higher.
Strategies to Bridge the Gap to Full Retirement
For those who need or wish to stop working before reaching their Full Retirement Age, several strategies can help manage finances during the gap:
- Phased Retirement: Transitioning to part-time work, even 15-20 hours a week, can provide essential income and may help with costs like health insurance.
- Build a Cash Reserve: Financial experts often recommend saving 18 to 24 months of living expenses in an accessible account, like a high-yield savings account, to cover costs without tapping into retirement funds early.
- Generate Side Income: Monetizing assets, such as renting a spare room or a driveway, can provide a steady cash flow. Flexible gigs like online tutoring, pet sitting, or selling crafts can also supplement income.
- Seek Bridge Jobs with Benefits: Some companies, including major retailers, offer health insurance and other benefits to part-time employees, which can be a crucial resource before qualifying for Medicare at 65.
Smart Financial Planning for an Early Exit
Careful management of your savings is key if you retire before your Full Retirement Age. A tax-efficient withdrawal strategy can help your nest egg last longer. Generally, it is advisable to withdraw from taxable investment accounts first to allow tax-advantaged accounts like IRAs and 401(k)s more time to grow. Additionally, contributions (though not earnings) to a Roth IRA can be withdrawn at any age without taxes or penalties. Keeping your reported income low may also help you qualify for subsidies on the Affordable Care Act marketplace, reducing healthcare costs until Medicare begins.
Looking Ahead: The Future of Retirement Age
The scheduled increase to age 67 is nearly complete, but discussions about the system’s future continue. Due to the program’s long-term financial challenges, some lawmakers have proposed further increasing the Full Retirement Age to 68 or 69 in the coming years. While such changes are intended to ensure the program’s sustainability, they could disproportionately affect those in physically demanding jobs. This uncertainty makes proactive and flexible retirement planning more important than ever.
Key Takeaways for Your Retirement Plan
To navigate these changes successfully, consider the following steps:
- Build a substantial cash reserve to cover living expenses for up to two years.
- Explore part-time work or side income streams to bridge the gap between leaving your career and claiming Social Security.
- Employ a thoughtful withdrawal strategy to protect your long-term retirement savings.
- Stay informed about potential future changes to Social Security and be prepared to adapt your plans.
Frequently Asked Questions
What is the new Full Retirement Age?
Starting in 2025, the Full Retirement Age is 66 years and 10 months for people born in 1959. For anyone born in 1960 or later, it is 67.
Can I still claim benefits at age 62?
Yes, you can still claim benefits as early as age 62. However, doing so will result in a permanently reduced monthly benefit—by approximately 30% if your Full Retirement Age is 67.
Why is the retirement age increasing?
The increase is primarily due to longer average life expectancies. It is a measure to help ensure the Social Security system remains financially stable for future generations.
How can I best prepare for these changes?
Focus on building a robust personal savings buffer, be open to part-time work in your later years, and carefully plan the timing of your Social Security claim to maximize your lifetime benefits.
