In the US, the idea of retirement is often associated with the age of 65. This age was traditionally considered the standard when most people completely separated from their professional lives and moved on to a new phase of life. But over time, many changes have been made to the Social Security system. According to the Social Security Amendments made in 1983, it was decided to gradually increase the full retirement age (FRA) to 67 years. Especially for people born in 1959, this age will be 66 years and 10 months from 2025. Even though this change is only for a few months, it can have a profound impact on your monthly Social Security benefit amount, retirement planning, and financial security. Therefore, it is important to know how this change will affect your life and financial decisions.
Change in Social Security’s Full Retirement Age: Understand in detail
The Full Retirement Age under Social Security was gradually increased according to the 1983 amendments. The aim was to ensure that the Social Security fund remains stable over the long term and that all future retirees receive the benefits they are entitled to. The FRA was planned to increase by two months for each birth year. For example, people born in 1958 could receive full benefits at age 66 years and 8 months, but for those born in 1959, it will now be 66 years and 10 months.
This change also means that if you decide to retire before this age, your monthly Social Security benefit will be reduced. For individuals born in 1959, retiring at age 62 will reduce benefits by about 29%, while for those born in 1960 or later, the reduction could be as much as 30%. In contrast, if you claim Social Security after FRA, benefits can increase by up to 8% per year, and if you wait until age 70, benefits can increase by as much as 32% overall. Thus, even a two-month increase in FRA can have a big impact on your monthly income over your lifetime.
How to fill the gap between early retirement and full benefits?
For those who want to retire before FRA, it is extremely important to be financially prepared. Taking early retirement without preparation can create financial difficulties. Some practical measures can be taken for this.
- Phased Retirement: You can discuss with your employer the option of working a three- or four-day workweek. This method will help you meet your needs, such as health insurance, groceries and other essential expenses. Even working only 15 hours per week can be helpful in meeting initial expenses.
- Build a cash runway: It’s important to have a financial blanket between retirement and your full Social Security benefits. Financial experts recommend saving 18–24 months of expenses in a high-interest savings account or money-market account. This method maintains financial stability even during a recession and doesn’t require you to sell your investments.
- Monetization of extra space: If you have extra rooms or parking space in your home, renting them out can generate monthly income. Long-term room rentals can run $700–$1,000, while driveway parking in busy city areas can earn $150–$300 per month. This solution can help bridge the financial gap between retirement and Social Security benefits.
- Bridge jobs with benefits: Some national retailers, such as Costco, Home Depot, and Trader Joe’s, offer benefits to part-time employees, including health insurance. If you work 20–28 hours per week, you can ensure health coverage along with some income. This option is especially useful for those who want financial security before reaching FRA.
Tax-Smart Strategies for Early Retirement
If you’re planning for early retirement or want to bridge the financial gap before you get the full benefit of Social Security, there are some tax-smart strategies you can adopt.
- Withdrawals from Taxable Accounts: It’s important that you withdraw money from taxable brokerage accounts first so that IRAs and 401(k) accounts can continue to grow.
- Roth IRA Withdrawals: Contributions made to a Roth IRA can be withdrawn at any age without tax or penalty. This provides a zero-tax option and gives you financial flexibility.
- Keeping Modified Adjusted Gross Income Low: Keeping income low in early retirement helps you get subsidies under the Affordable Care Act (ACA). This can save thousands of dollars in health insurance premiums, unless you qualify for Medicare.
- Side Income Options: Additional income can be earned by online tutoring ($30–$50 per hour), pet sitting, or selling handmade goods. This option ensures additional income without having to commit to a full-time job.
Possible Changes in Retirement Age in the Future
Even though raising the FRA from 65 to 67 is nearly complete, lawmakers are now considering raising it to 68 or 69. This change could affect people who do physically demanding jobs or have a shorter life expectancy.
The Social Security fund is also under severe financial pressure. Experts estimate that the trust funds could be depleted by 2034, leaving retirees with only 81% of their benefits. Lawmakers are considering solutions such as raising the payroll tax or further increasing the FRA.
Social Security Retirement Planning Tools
Tools such as My Social Security Account and the Retirement Age Calculator are helpful in planning for retirement. These help you understand how the FRA change will affect your Social Security benefits and what kind of planning to do.
Conclusion: Flexible and strategic retirement planning is a must.
The increase in Social Security’s Full Retirement Age in 2025 may seem minor, but it is a reminder that retirement planning should not be limited to age alone.
- Build a cash reserve.
- Explore part-time income options.
- Embrace tax-smart withdrawal strategies.
- And be flexible for potential future changes.
Through these measures, you can plan for your retirement without being affected by any Social Security changes. This will not only ensure financial security but also give you the opportunity to move into a new direction in your life with peace of mind.
FAQs
Q. What is the Full Retirement Age (FRA) for those born in 1959?
A. The FRA for individuals born in 1959 is 66 years and 10 months.
Q. Can I claim Social Security benefits before the FRA?
A. Yes, you can claim benefits as early as 62, but your monthly benefit will be reduced.
Q. What happens if I delay claiming benefits past the FRA?
A. Delaying benefits past the FRA increases your monthly Social Security by up to 8% per year, up to age 70.
Q. How can I bridge the gap if I retire early?
A. You can use phased retirement, part-time jobs with benefits, cash reserves, or monetize extra space to cover expenses until full benefits start.
Q. Will Social Security benefits change in the future?
A. Lawmakers are discussing increasing the FRA further to 68 or 69, so it’s important to plan flexibly for retirement.
