Understanding the Full Retirement Age for those born in 1970
For many years, 65 was the standard retirement age, but legislation passed in 1983 gradually raised the full retirement age (FRA). If you were born in 1970 or any year after 1960, your FRA is 67. This is the age at which you can receive 100% of the Social Security benefits you have earned throughout your working life. Retiring at 65, which is considered early for your birth year, has significant and permanent financial consequences. Your monthly benefit is reduced for every month you claim benefits before your FRA.
The impact of early Social Security benefits
Claiming Social Security at 65 instead of 67 will result in a permanent reduction in your monthly payments. For those with an FRA of 67, claiming benefits two years early will mean a permanent reduction of about 13.3%. The precise percentage is calculated monthly, but it translates to a significantly smaller check for the rest of your life. This reduction is a key factor to weigh against the desire for an earlier retirement. On the other hand, delaying your benefits past your FRA can increase your monthly benefit by 8% for each year you wait, up until age 70.
Health insurance considerations before Medicare eligibility
One of the most critical aspects of retiring at 65 for a person born in 1970 is health insurance. While the full Social Security age has increased, Medicare eligibility has not; it still begins at age 65. If you plan to retire at 65, you must have a plan to cover health care costs for the two years until you become eligible for Medicare.
- Employer-based options: You may be able to continue your health coverage through a former employer's plan via COBRA, but this can be very expensive. Some retirees have access to their spouse's employer-sponsored plan, which is often a more affordable option.
- Health Insurance Marketplace: You can purchase a private health insurance plan through your state or federal HealthCare.gov marketplace. Depending on your income, you may be eligible for subsidies to help lower your monthly premium.
- Retiree health insurance: Some companies offer retiree health insurance, but this benefit is increasingly rare. You'll need to check with your former employer to see if you have access to this benefit.
Planning for a successful retirement at 65
To make retiring at 65 a reality, a robust financial plan is essential. Since your Social Security benefit will be lower, you must account for this with other income sources and careful budgeting. The goal is to ensure your savings will last throughout a longer retirement period.
- Increase savings: For the years leading up to retirement, maximize your contributions to your 401(k), IRA, or other retirement savings vehicles. Utilizing catch-up contributions, which are available to those 50 and older, can significantly boost your savings.
- Create a budget: Develop a detailed post-retirement budget to understand your expected expenses. This should account for healthcare, housing, and discretionary spending. Using a retirement calculator can help you project how much you'll need.
- Evaluate income sources: Identify all potential income streams, including pensions, annuities, investment income, and personal savings, to fill the gap left by a reduced Social Security check.
- Explore part-time work: A part-time job or consulting work can provide income, fill your time, and delay tapping into your retirement savings. After reaching your full retirement age, you can earn any amount without affecting your Social Security benefits.
Comparing retirement ages for someone born in 1970
| Feature | Retire at 65 (Early) | Retire at 67 (Full) | Retire at 70 (Delayed) |
|---|---|---|---|
| Social Security Benefit | Reduced by approximately 13.3% permanently. | Receive 100% of your earned benefit. | Receive a monthly benefit about 24-32% higher than your full benefit. |
| Medicare Eligibility | You must secure health insurance for two years until Medicare begins at 65. | Medicare begins at age 65, before your FRA. You need a plan to pay premiums if not yet claiming Social Security. | Medicare begins at age 65. You may use delayed Social Security benefits to help cover premiums. |
| Savings Longevity | Your personal savings and other assets must last for a longer retirement, requiring a careful withdrawal strategy. | Your retirement lasts a shorter period, potentially easing the pressure on your savings. | Your shorter retirement and larger Social Security payments can significantly boost your financial security. |
| Workplace Factors | Leave the workforce two years earlier, potentially missing out on higher earning years. | Retire at your FRA, capturing additional years of income and retirement savings. | Maximize earning potential and retirement savings by working an extra three years. |
| Survivor Benefits | Claiming early can reduce the potential survivor benefits for a spouse. | Maximize your potential survivor benefits for your spouse. | Maximize your potential survivor benefits for your spouse. |
Conclusion
Yes, you can retire at 65 if you were born in 1970, but it is not without financial tradeoffs. The most significant is a permanent reduction in your Social Security benefits compared to what you would receive at your full retirement age of 67. Additionally, you will need to plan for healthcare costs to cover the two-year gap before you become eligible for Medicare. A successful retirement at 65 depends on a detailed plan, including managing your expenses, maximizing savings, and considering other income sources. While an early retirement offers more time for leisure, waiting until your full retirement age or later could lead to greater long-term financial security through increased Social Security benefits. This decision should be made after a comprehensive financial review, possibly with the assistance of a financial advisor, to ensure your plan aligns with your long-term goals. For additional insights, explore the Social Security Administration's retirement planner.
