Goodbye to Retirement at 67 – the new age for collecting Social Security changes everything in the United States

In the United States, the idea of ​​retirement is often associated with the “magical age” of 65. This was once considered the age at which people could retire and begin receiving Social Security benefits. However, Social Security rules have been gradually changing over the past few decades. Specifically, for those born in 1959, the full retirement age (FRA) will be 66 years and 10 months starting in 2025. This change may seem like just two months, but it could have significant financial and lifestyle implications.

The change has the greatest impact on those who have already included Social Security benefits in their retirement plans. If you had planned to retire at 65 or 66, you will now have to adjust your plans to accommodate a shorter wait. It’s important to understand how this increase in FRA could affect your monthly benefits, tax liabilities, and investment plans.

Changes to Social Security’s Full Retirement Age

Under the Social Security Amendments of 1983, the FRA was gradually raised from 65 to 67 years old. This change was implemented in two-month increments. This means that those born in 1959 will be eligible for full benefits at age 66 and 10 months, while those born in 1960 or later will have an FRA of 67 years old.

The most obvious impact will be on monthly Social Security benefits. If someone chooses to retire before FRA, for example, at age 62, their benefit will be reduced. For individuals born in 1959, the reduction is approximately 29%, while for those born in 1960 and later, it can be as much as 30%. In contrast, if you claim benefits after FRA, an increase of approximately 8% per year is possible, which can increase to 32% by age 70.

This change clarifies that Social Security benefits are not based solely on retirement age but also on the timing of benefit planning and personal financial situation.

How to Bridge the Gap Between Early Retirement and Full Benefits

For those who don’t want to wait until FRA and choose to retire early, some strategies may prove valuable.

1. Phased Retirement:

2. Cash Reserve:

• Maintaining financial security before Social Security benefits begin is crucial. Financial experts recommend maintaining an amount equivalent to 18–24 months of expenses in a high-yield savings account or money market account before retirement. This allows you to cover unexpected expenses without having to sell the investment.

3. Monetize Extra Space:

• If you have an extra room or driveway in your home, consider renting it out. Long-term room rentals can bring in $700–$1,000 per month, while driveway parking in urban areas can generate $150–$300 per month.

4. Part-Time Jobs with Benefits:

• Some national retailers, such as Costco, Home Depot, and Trader Joe’s, offer benefits like health insurance to employees who work 20–28 hours per week in part-time jobs. This option ensures financial and health security during early retirement.

Taxes and Smart Withdrawal Strategies

Planning for taxes and withdrawals is essential for early retirement.

1. Withdrawals from Taxable Accounts:

• Let retirement plans like an IRA or 401(k) grow and withdraw funds from a taxable brokerage account first. This will avoid penalties and allow investments to continue growing.

2. Roth IRA Withdrawals:

• Roth IRA contributions (not earnings) can be withdrawn tax- and penalty-free at any time. This provides a cost-effective financial option for early retirement.

3. Keep Modified Adjusted Gross Income Low:

• If you keep your income low in early retirement, you may be eligible for health insurance subsidies under the Affordable Care Act. This can save thousands of dollars on health insurance.

4. Side Income:

• If you need additional income, consider options like online tutoring, pet sitting, freelancing, or selling handicrafts. These activities can provide additional income without a full-time job.

Potential Changes to the Retirement Age in the Future

Although the FRA is gradually approaching 67, lawmakers are considering raising it to 68 or even 69. Social Security’s trust funds could be depleted by 2034, leaving retirement benefits at only 81%. Options such as increasing payroll taxes or raising the FRA are being discussed to address this.

For those currently planning for retirement, it’s important to create a flexible retirement plan. Using cash reserves, part-time income, and tax-efficient withdrawal strategies can help address potential changes.

Why it’s important to be vigilant about Social Security and retirement planning

The change from 65 to 67 may seem small, but it demonstrates that Social Security and retirement planning have become more complex than ever. When planning for retirement, you need to consider the following:

1. Building a cash reserve.
2. Considering part-time or phased retirement.
3. Making smart tax and withdrawal choices.
4. Planning for a potential FRA increase in the future.

These strategies allow you to retire when you’re ready, not when Social Security rules dictate.

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