Goodbye to Retirement at 67:For many Americans, the idea of retirement often revolves around reaching the magical age of 65. However, the full retirement age (FRA) for Social Security benefits is gradually increasing, and for those born in 1959, it will be 66 years and 10 months by 2025.
While this change may seem small, it has a significant impact on how and when you can claim your benefits. It’s important to understand how these changes affect your retirement strategy, so you can make the most of your Social Security benefits.
What exactly has changed in Social Security’s full retirement age?
The 1983 Social Security amendments gradually raised the FRA from 65 to 67, and scheduled it to increase in two-month increments. People born in 1959 will have an FRA of 66 years and 10 months by 2025.
For individuals born in 1960 or later, the full retirement age will be 67. This change means that people who were expecting to retire at 66 years and 8 months (for the 1958 cohort) will now have to wait two months longer.
For those planning to retire before their FRA, applying early at age 62 will result in a significant reduction in monthly benefits—by about 29% for those born in 1959 and by 30% for those born in 1960 or later.
However, delaying your Social Security claim after FRA can increase your benefits by up to 8% per year, and as much as 32% if you wait until age 70.
How to bridge the gap between early retirement and full benefits
For those who want to retire before reaching full retirement age, there are some strategies to make this transition easier without relying on a full-time job:
- Phased retirement: Consider working three or four days a week. Part-time work, even just 15 hours a week, can help cover essential expenses like health insurance and groceries without dipping into retirement savings.
- Avenue of cash: It’s important to have a financial cushion to tide you over between retirement and full Social Security benefits. Financial experts recommend saving 18-24 months of living expenses in a high-yield savings account or money-market account. This can provide stability during a recession without having to sell investments.
- Monetize extra space: If you have extra space in your home or driveway, consider renting it out. Long-term room rentals can bring in $700-$1,000 a month, and driveway parking in busy urban areas can bring in $150-$300.
- Bridge Jobs with Benefits: Some national retailers, such as Costco, Home Depot, and Trader Joe’s, offer part-time jobs with medical benefits for employees who work 20-28 hours a week. These jobs can provide you with some income and health insurance until you reach your full retirement age.
Smart Withdrawal and Tax Strategies for Early Retirement
If you’re planning to retire early or bridge the gap before receiving full Social Security benefits, there are some tax-smart strategies to consider:
- Withdrawals from taxable accounts: To avoid penalties and allow retirement accounts like an IRA or 401(k) to keep growing, consider withdrawing from taxable brokerage accounts first.
- Roth IRA withdrawals: Roth IRA contributions (not earnings) can be withdrawn tax- and penalty-free at any age. This offers a zero-tax option for accessing funds without affecting your tax situation.
- Keep modified adjusted gross income low: Maintaining a low income during early retirement can help you qualify for Affordable Care Act subsidies, which can save thousands on health insurance premiums until Medicare eligibility at age 65.
- Extra income: If you need extra income, consider side hustles like online tutoring, pet sitting, or selling handmade crafts for $30-$50 an hour. These options allow you to earn money without having a full-time job.
Plan for future changes in the retirement age
Although the change from 65 to 67 years of age is nearly complete, lawmakers are already considering the possibility of raising the full retirement age to 68 or even 69 years of age in the future.
Although no new laws have been passed yet, it’s a good idea to prepare for these potential changes by creating a flexible retirement plan. Cash reserves, part-time income and tax-efficient withdrawal strategies will help mitigate any future changes to the Social Security system.
Retirement planning has never been so complex, and the gradual increase in the full retirement age is just one of the factors that needs careful consideration.
Although raising the retirement age to 67 may seem like a minor change, it shows the importance of creating a plan to deal with this change.
Building a cash reserve, considering a part-time job and using smart tax strategies can help you retire when you’re ready, not when Social Security tells you to.
Keep in mind that flexibility is important, especially as lawmakers continue to debate further increases in the retirement age.
One proposal under Discussion is to Raise the FRA.
Social Security is facing serious financial challenges, with projections suggesting the program’s trust funds could be exhausted by 2034. If that happens, retiree benefits would be limited to just 81% of what was promised. Lawmakers are considering possible solutions, such as raising payroll taxes or further raising the FRA.
One proposal under discussion is to raise the FRA to 69 between 2026 and 2033, which would affect millions of workers currently aged 30 to 55. While some argue this is necessary to keep Social Security afloat, critics warn such changes could have a negative impact on people in physically demanding jobs or those with short life expectancies.
For people planning for retirement, the Social Security Administration provides tools such as the Retirement Age Calculator and Individual Benefit Estimates through My Social Security Accounts, allowing individuals to estimate how these changes will affect their financial future.
The increase in the full retirement age in 2025 is just one of many changes older Americans need to consider in their retirement planning. Although the tax relief provided by Trump’s bill offers some help, it doesn’t fully address the challenges facing Social Security.
As lawmakers continue to debate the future of the program, retirees should stay aware of the changing landscape of Social Security and retirement benefits and plan carefully.
FAQs
Q.1 What is the new full retirement age for Social Security?
Starting in 2025, the full retirement age for Social Security benefits will be 66 years and 10 months for people born in 1959 and 67 years for people born in 1960 or later.
Q.2 Can I still claim Social Security benefits at age 62?
Yes, you can still claim Social Security benefits at age 62, but you’ll only get 70% of your full benefit amount. The longer you wait, the higher the monthly benefit will be.
Q.3 Why is the retirement age being raised to 67?
The full retirement age is being raised to 67 to take into account the longer life expectancy of Americans. This change helps maintain the stability of the Social Security system.
Q.4 How can I prepare financially for the new full retirement age?
To prepare for the new full retirement age, experts recommend building a cash reserve to cover 18-24 months of living expenses, considering a part-time job, and strategically planning your Social Security claim.
Also Read..$6,000 Stimulus Check In 2025- Who’s Eligible And How To Claim It
