Social Security benefits have been a safety net for many Americans, providing financial support for those who have worked hard for most of their lives. For years, the age of 65 has been synonymous with the full retirement age for Social Security. However, starting this month, the Social Security Administration (SSA) has made a significant change that impacts future retirees. The full retirement age has now been raised, making it more challenging for those hoping to retire at 65 to receive full benefits.
This change will affect millions of people who are planning for retirement in the coming years. In this article, we will discuss the reasons behind this change, how it affects future retirees, and what individuals should consider when planning their retirement under the new guidelines.
What is the Full Retirement Age?
The full retirement age (FRA) is the age at which a person can begin to claim their full Social Security benefits without facing any penalties. Prior to this change, that age was 65 for many people, but over the years, it has been gradually raised for people born after 1937. This shift began back in 1983, when a law was passed to increase the FRA to 67 for individuals born in 1960 or later.
For those born before 1960, the age at which they can begin receiving full Social Security benefits varies:
- Born before 1938: Full retirement age is 65.
- Born between 1938 and 1954: Full retirement age gradually increases from 65 to 66.
- Born after 1960: Full retirement age is now set at 67.
Now, starting this month, the full retirement age is being raised again, even for those who already had an expectation to retire at 65.
Why is the Retirement Age Being Increased?
Several factors have led to this change. One primary reason for the increase in retirement age is Americans’ longer life expectancy. People are living longer and, in many cases, healthier lives. As people live longer, the number of years they receive Social Security benefits also increases. This puts additional strain on the Social Security system, which is primarily funded by payroll taxes.
The increase in the retirement age aims to address this issue and ensure that the Social Security program remains financially sustainable. By delaying the age at which individuals can claim full benefits, the government is essentially reducing the total amount of benefits paid out over time. This change is intended to help ensure the long-term viability of the program.
Another factor contributing to the increase is the increasing number of people reaching retirement age. As the Baby Boomer generation continues to age, the Social Security system is under greater strain. With fewer workers paying into the system and more retirees drawing from it, the government has had to make adjustments to keep the program functioning smoothly.
How Does This Affect Future Retirees?
This change may disappoint those planning to retire at 65. Now, individuals who are nearing retirement will have to adjust their plans if they wish to receive full Social Security benefits. Depending on when they were born, they may have to work longer before they can begin receiving their full benefits.
Here’s a breakdown of how the new full retirement age will affect future retirees:
- For individuals born in 1960 or later: Full retirement age is now 67. This means they will need to wait two more years compared to the previous full retirement age of 65.
- For individuals born between 1955 and 1959: The full retirement age will gradually increase to 66 and a few months, depending on the exact year of birth.
- For individuals born before 1955: There is no change, and they will continue to receive full benefits at the age previously assigned to them.
For many future retirees, this change could impact their financial planning and how they structure their savings. Those who have been relying on the idea of retiring at 65 will now have to wait until they are 67 to claim full benefits. This delay could affect not only their savings goals but also their lifestyle after retirement.
What Does This Mean for Early Retirees?
The new rule will also affect individuals who are considering retiring early. While it is still possible to begin claiming Social Security benefits as early as 62, doing so will result in a reduced monthly benefit. The earlier someone begins to claim benefits, the smaller the amount they will receive each month.
For example, if a person begins claiming benefits at age 62, they will only receive about 70% of the full benefit they would have received at the full retirement age. As a result, if someone was hoping to retire at 65 and receive full benefits, they now have to decide if they are willing to accept a reduced benefit for the first couple of years or if they are willing to work longer to claim the full benefit at 67.
What Can You Do to Prepare for This Change?
With the retirement age increase, it’s essential for future retirees to take proactive steps to ensure they are prepared for retirement, both financially and emotionally. Here are some tips to consider:
1. Evaluate Your Retirement Savings
It’s crucial to assess your savings and investment strategy. If you’re planning to retire at 65, you may now need to adjust your savings plan to account for the additional two years of work. Review your retirement accounts, such as your 401(k) or IRA, and determine if you need to increase your contributions.
2. Consider Delaying Your Retirement
If you’re nearing the new full retirement age of 67, consider working a little longer. Delaying your retirement not only allows you to increase your Social Security benefits but also provides you with more time to save and reduce your financial reliance on Social Security.
3. Consult a Financial Planner
If you’re unsure how the retirement age change will affect your individual situation, it’s a good idea to consult with a financial planner. They can help you navigate your retirement options and make the best decisions for your future.
4. Stay Informed
Make sure you stay up-to-date on any further changes to Social Security. The rules around Social Security benefits may continue to evolve, and it’s important to be aware of how those changes affect you.
5. Review Your Social Security Statement
It’s important to regularly review your Social Security statement to ensure that your earnings are accurately reported. The more you earn throughout your career, the higher your Social Security benefit will be. If you notice any discrepancies in your earnings history, it’s best to address them as soon as possible.
Conclusion
The increase in the full retirement age for Social Security is a significant change that will affect millions of future retirees. While it may be disappointing for those hoping to retire at 65, the adjustment is necessary to ensure the long-term financial health of the Social Security system. Those planning for retirement need to take these changes into account and adjust their savings, investment, and retirement plans accordingly. By staying informed and proactive, retirees can make the best decisions for their financial future.