Understanding Your Full Retirement Age
For many years, age 65 was the standard benchmark for retirement and receiving full Social Security benefits. However, in 1983, Congress passed a law to gradually increase the full retirement age (FRA). This adjustment was implemented in a tiered system based on birth year. For anyone born in 1960 or later, your FRA is 67. This means that reaching age 65 is a significant milestone for Medicare eligibility, but it is not the point where you qualify for 100% of your Social Security benefit.
Why Your Full Retirement Age Matters
Your full retirement age is the age at which you can receive your full, unreduced Social Security benefit, also known as your Primary Insurance Amount (PIA). If you claim benefits before your FRA, your monthly payment is permanently reduced. Conversely, if you wait until after your FRA, your monthly benefit is permanently increased due to delayed retirement credits. This structure is designed to be actuarially equivalent over a lifetime, but it significantly impacts your monthly cash flow in retirement.
Retiring at 65: What to Expect
For those born in 1967, claiming benefits at age 65 would mean accepting a reduced benefit. Based on the rules for an FRA of 67, claiming at 65 results in a permanent reduction of about 13.3%. This is because you would be receiving benefits for 24 additional months compared to waiting for your FRA. This reduction is not temporary; it lasts for the rest of your life. While you can certainly retire and stop working at 65, you need to be prepared for the financial impact of a smaller monthly Social Security check.
The Trade-offs of Early Claiming
- Less Financial Security: A smaller check for life can strain a retirement budget, especially as healthcare costs rise and inflation erodes purchasing power over time. The smaller base amount also means smaller cost-of-living adjustments (COLAs) in the future.
- Higher Health Costs: While Medicare generally starts at 65, retiring from a job that provided health insurance means you will lose that coverage. You must sign up for Medicare during your Initial Enrollment Period to avoid penalties and ensure continuous coverage.
- Potential Spousal Impact: Your decision can also affect your spouse. If you are the higher earner and claim early, your spouse's potential survivor benefits will be based on your reduced amount.
Weighing Your Claiming Options
Claiming at 62 (Earliest)
- Pros: Provides income sooner, useful for those who need it due to health issues or job loss.
- Cons: Largest permanent benefit reduction. For those with an FRA of 67, claiming at 62 can result in up to a 30% reduction.
Claiming at 67 (Full Retirement Age)
- Pros: Receive 100% of your earned benefit, providing maximum stability from your Social Security income.
- Cons: Must wait longer to access benefits.
Claiming at 70 (Delayed)
- Pros: Maximizes your monthly benefit. For each year you delay past your FRA, up to age 70, you earn delayed retirement credits, increasing your benefit by 8% annually.
- Cons: Requires sufficient alternative income or savings to bridge the gap until age 70.
Claiming Age Comparison (Born 1967)
| Age Benefits Begin | Benefit as a Percentage of PIA | Impact |
|---|---|---|
| 62 | ~70% | Maximum permanent reduction. |
| 65 | ~86.7% | Significant permanent reduction. |
| 67 (FRA) | 100% | Full, unreduced benefit. |
| 70 | 124% | Maximum possible monthly benefit. |
Crucial Steps for Your Retirement Plan
Create a 'My Social Security' Account
This is perhaps the most important step for anyone approaching retirement. By creating a personal account on the Social Security Administration website, you can access your detailed earnings history, review your estimated benefits at different claiming ages, and ensure your work record is accurate. If you have fewer than 35 years of earnings, it’s beneficial to work more years to replace a low-earning or zero-earning year in your benefit calculation.
Coordinate with Other Retirement Income
Social Security is just one piece of your retirement puzzle. You should assess how your claiming age affects your overall financial plan, including savings from 401(k)s, IRAs, or pensions. If you have substantial savings, waiting to claim Social Security might be the best option to maximize your monthly income later in life. A CERTIFIED FINANCIAL PLANNER™ can help you evaluate these complex decisions.
Factor in Spousal and Survivor Benefits
If you are married, your claiming decision can also affect your spouse's benefits. For example, if you predecease your spouse, they may be eligible for a survivor benefit based on your work record. Claiming your own benefits early would result in a lower base for your spouse's potential survivor benefits. Careful coordination can lead to a higher combined lifetime benefit for you and your partner.
Conclusion
For those born in 1967, retiring at 65 is an option, but it comes with a trade-off: a permanently reduced Social Security benefit. Your full retirement age is 67, and delaying your claim can significantly increase your monthly payment. The right choice depends on your individual health, life expectancy, and overall financial readiness. Understanding these key factors and planning proactively will empower you to make the most informed decision for a secure and healthy retirement. Ultimately, while you can technically retire at 65, it is critical to weigh the financial implications against your personal circumstances.
