Is it better to retire at 65 or 67? The definitive guide

For those born in 1960 or later, the full retirement age for Social Security is 67. Deciding whether it is better to retire at 65 or 67 involves weighing several financial factors against your personal health and life goals. This guide provides a comprehensive overview to help you make an informed decision for a secure and comfortable retirement.

Quick Summary

Deciding when to retire depends on individual circumstances, including life expectancy, financial needs, and health. Retiring at 65 may provide earlier access to funds but means a permanently reduced Social Security benefit and costs for healthcare before Medicare eligibility at 65, while waiting until 67 ensures a higher monthly benefit for life and access to Medicare. Evaluating your personal situation is key to finding the right balance.

Key Points

• Social Security Reduction: Claiming at 65 means a permanent reduction in your monthly Social Security benefit compared to waiting until your full retirement age of 67.

• Full Benefit at 67: Waiting until 67 ensures you receive 100% of your primary Social Security benefit, with all future cost-of-living adjustments applied to this higher base amount.

• Medicare at 65: Medicare eligibility begins at 65, which is an important consideration. Retiring at 65 ensures a seamless transition to Medicare, while retiring earlier would require costly private insurance.

• Increased Lifetime Payout: If you have a long life expectancy, waiting until 67 (or even 70) often results in a higher cumulative lifetime payout from Social Security despite fewer years of collection.

• Survivor Benefits: Your claiming age can significantly impact the survivor benefits for a spouse, with a larger monthly amount available if you delay claiming until 67 or later.

• No Earnings Limit at 67: Working part-time in retirement is more flexible at 67, as there is no earnings limit that could reduce your Social Security payments, unlike with early claiming.

Your Financial Roadmap: Retiring at 65 vs. 67

The age you choose to retire is one of the most critical financial decisions you will make. While the earliest age to begin collecting Social Security is 62, waiting until your full retirement age (FRA), which is 67 for those born in 1960 or later, offers significant advantages. However, personal factors may make an earlier retirement appealing. A deeper understanding of the trade-offs between retiring at 65 and 67 is essential for a sound financial future.

The Social Security Factor: The Heart of Your Decision

Your Social Security benefit is the most significant financial consideration when choosing between retiring at 65 and 67. The government calculates your benefit based on your 35 highest-earning years, and the age you claim has a permanent effect on the monthly amount you receive.

The impact of claiming early at 65

• Permanently Reduced Benefits: Retiring at 65 is two years before the FRA of 67. For each month you claim before your FRA, your monthly benefit is permanently reduced. Claiming at 65 would mean accepting a benefit that is approximately 13.3% less than your full benefit at age 67. This reduction is permanent and will affect every payment you receive for the rest of your life.
• Higher Lifetime Benefits?: Claiming early at 65 provides two additional years of Social Security income. However, this is offset by the permanently lower monthly payments. For those who live a long life, waiting until 67 often results in a higher cumulative payout over their lifetime, despite receiving benefits for a shorter period initially.

The benefits of waiting until 67

• Full Retirement Benefit: By waiting until your FRA of 67, you will receive 100% of your primary insurance amount (PIA). This higher base amount is used for all future cost-of-living adjustments (COLA), helping to maintain your purchasing power as inflation rises.
• More Retirement Savings: The two extra years you work between 65 and 67 allow you to continue contributing to your retirement accounts (e.g., 401(k)s and IRAs) and postpone withdrawals. This gives your investments more time to grow, especially important if markets have been volatile.
• No Earnings Limit: If you plan to work part-time in retirement, waiting until 67 is beneficial. While receiving Social Security benefits before your FRA, there is an earnings limit. If you earn over this limit, your benefits are temporarily reduced. At 67, there is no such earnings limit, allowing you to earn as much as you want without impacting your Social Security payments.

Beyond Social Security: Other Financial Considerations

The timing of your Social Security payments is just one piece of the puzzle. Other financial and personal factors must be weighed before making your final decision.

Medicare eligibility

• Medicare Gap at 65: Medicare eligibility starts at age 65 for most people. If you retire at 65, you can transition to Medicare seamlessly. However, if you retire before 65 (at 62, for example), you would have a gap in healthcare coverage that must be filled with private insurance, which can be costly.
• Seamless Transition at 67: If you wait until 67 to retire, you are well past the age of Medicare eligibility. You would have already been on Medicare for two years, avoiding any private insurance gaps and associated costs.

Longevity and life expectancy

• The Break-Even Point: A common tool for comparing claiming ages is the 'break-even point,' the age at which the cumulative value of your higher monthly benefits (from waiting) surpasses the total value of the smaller, earlier benefits. For those choosing between 65 and 67, the break-even point is typically somewhere in your late 70s. If you expect to live well beyond this point, waiting is more financially advantageous over your lifetime.
• Health and Family History: Your personal health and family history of longevity are crucial. If you have significant health concerns or a shorter life expectancy, claiming at 65 might be the best way to maximize your total lifetime benefits. Conversely, if you are in excellent health and anticipate a long retirement, the larger monthly benefit from waiting until 67 provides a significant long-term income stream.

Impact on a surviving spouse

• Survivor Benefits: The age at which you claim also affects the survivor benefit available to your spouse. If you were the higher earner, waiting until 67 (or even 70) to claim your benefits can secure a larger monthly payment for your spouse if you pass away first. This can significantly impact the surviving spouse's financial security for the rest of their life.

Retirement Timing Comparison: 65 vs. 67

Consideration	Retiring at 65	Retiring at 67
Social Security Benefit	Permanently reduced by approximately 13.3%.	Receive 100% of your full benefit.
Access to Funds	Two years of earlier access to Social Security income.	Start receiving benefits two years later.
Investment Growth	Potentially fewer years for retirement savings to grow.	Two more years of tax-advantaged growth on retirement savings.
Earnings Limit	Subject to an earnings limit if you work while collecting benefits.	No earnings limit, can work and collect full benefit.
Medicare Coverage	Eligible for Medicare at 65, ensuring coverage.	Already covered by Medicare for two years.
Lifetime Payout	Higher early payments, but potentially lower total payout if you live a long time.	Higher monthly payments, likely higher cumulative payout if you live a long life.
Survivor Benefits	Smaller potential survivor benefit for your spouse.	Larger potential survivor benefit for your spouse.

How to Make Your Final Decision

Making the right choice involves a personalized assessment of your situation. Start by using the Social Security Administration's online tools to get your benefit estimates for different ages. You should also calculate your personal 'break-even' point to see how long you would need to live to make waiting until 67 worthwhile financially. Consider your health, lifestyle aspirations, and whether you plan to continue working part-time. If you have significant savings and want to retire sooner, 65 might be a good fit. However, if you are concerned about outliving your money or want to secure the highest possible guaranteed income, delaying until 67 is likely the more prudent option. For a more personalized and comprehensive plan, it is often wise to consult a financial advisor who can help you navigate these complex decisions based on your unique financial picture.

Final Thoughts

Ultimately, the decision of whether it is better to retire at 65 or 67 is a personal one with no single right answer. It is a balance between enjoying retirement sooner and securing a higher, more stable income for the rest of your life. By carefully considering all the financial and personal factors involved, you can confidently choose the path that best supports your healthy and happy senior years. Further information and calculators are available on the official Social Security website: https://www.ssa.gov/benefits/retirement/

Frequently Asked Questions

What is the full retirement age for Social Security for someone born in 1960 or later?

For anyone born in 1960 or later, the full retirement age (FRA) for Social Security is 67. This is the age at which you are eligible to receive 100% of your primary insurance amount.

How much less will my monthly Social Security benefit be if I retire at 65 instead of 67?

If your full retirement age is 67, retiring at 65 (two years early) will result in a permanent reduction of your monthly benefit by approximately 13.3%. The exact percentage depends on the number of months you claim early.

What is the 'break-even' point for claiming Social Security later?

The 'break-even' point is the age at which the cumulative total of your higher monthly benefits (from waiting) surpasses the total of the smaller, earlier benefits. For those waiting until 67 instead of claiming early, this point is typically in their late 70s.

Do I have to wait to receive my Social Security benefits until I stop working?

No, you can start receiving Social Security benefits while still working. However, if you are below your full retirement age, your benefits may be reduced if your earnings exceed the annual limit. At or after your full retirement age, there is no earnings limit.

How does delaying retirement affect Medicare eligibility?

Delaying your Social Security benefits does not affect your Medicare eligibility, which typically begins at age 65. It is important to sign up for Medicare at 65, even if you are not yet taking your Social Security benefits.

Should I consider my spouse's financial situation when deciding when to retire?

Yes, your claiming decision can have a big impact on your spouse, especially regarding survivor benefits. If you are the higher earner, a higher monthly benefit resulting from a delayed claim can provide a larger survivor benefit to your spouse if you pass away first.

Can I change my mind after starting my Social Security benefits early?

Yes, but there are limitations. You can withdraw your claim within 12 months and repay all benefits received to the government. You can only do this once. Once you reach your full retirement age, you can also voluntarily suspend your benefits until age 70 to earn delayed retirement credits.