Understanding Your Full Retirement Age
Your decision on when to claim Social Security benefits is one of the most important financial choices you will make for your retirement years. For many recent retirees, the option of retiring at age 66 or 67 is relevant due to the gradual increase of the full retirement age (FRA). For anyone born in 1960 or later, the FRA is 67. However, those born between 1943 and 1959 have a full retirement age that is between 66 and 66 years and 10 months. For anyone with a full retirement age of 67, claiming benefits one year early at 66 results in a permanent reduction of your monthly payment.
The Financial Impact: Claiming Early
If your FRA is 67 and you opt to start collecting benefits at 66, the Social Security Administration considers this an early claim. This results in a permanently reduced monthly benefit. The reduction is based on a specific calculation that averages a reduction of 5/9 of 1% for each month, totaling about a 6.7% reduction for claiming exactly one year early. This means for every dollar you would have received at age 67, you'll get less, for life. While you receive benefits for an extra year, the lower monthly amount can add up to a significant total loss over a long retirement.
The Financial Impact: Waiting Until Full Retirement Age
For those with an FRA of 67, waiting until that age to claim your benefits means you will receive 100% of your primary insurance amount (PIA). This is the full monthly benefit calculated based on your earnings history. By waiting just one year from age 66, you avoid the permanent reduction and lock in your full benefit amount. This provides a higher, more stable foundation for your retirement income, which also affects potential spousal and survivor benefits.
The Financial Impact: Beyond Full Retirement Age
For many, the best financial strategy is to delay benefits even past their FRA. For each year you delay claiming Social Security past your FRA, up to age 70, you earn delayed retirement credits. These credits increase your monthly benefit by 8% for each year you wait. For someone with an FRA of 67, waiting until age 70 would result in a benefit that is 24% higher than their full retirement amount. This compounding growth is a powerful tool for boosting retirement income, especially for those with a longer life expectancy.
The Break-Even Point
One crucial calculation in this decision is the 'break-even point.' This is the age at which the cumulative lifetime benefits from waiting to claim (and receiving higher monthly checks) overtake the cumulative benefits from claiming earlier. For many, delaying a year or more pushes this break-even point into their late 70s or early 80s. Understanding your projected life expectancy and comparing your financial situation with this break-even point can provide a clearer picture of whether waiting is the right choice for you.
Health and Life Expectancy Considerations
Your personal health and projected life expectancy are among the most important non-financial factors to consider. If you have a family history of longevity and are in excellent health, waiting to claim and receiving a larger monthly benefit for potentially many years could be the most beneficial strategy. Conversely, if you have significant health issues or a shorter life expectancy, claiming earlier at 66 might make more sense to ensure you receive benefits for a longer total period. Forcing yourself to work another year in poor health might not be worth the extra benefit money.
Other Factors: Employment, Savings, and Spousal Benefits
- Continued Employment: If you plan to continue working, claiming Social Security before your FRA can lead to your benefits being temporarily withheld if your earnings exceed a certain limit. At your FRA, this earnings test no longer applies. This is a critical consideration if you plan a phased retirement or part-time work.
- Other Income Sources: If you have substantial retirement savings (like a 401(k) or IRA) or a pension, you may have more flexibility to delay claiming Social Security. Relying on other income allows your Social Security benefit to grow, maximizing your later payments.
- Spousal and Survivor Benefits: The age at which you claim can affect the benefits your spouse and dependents can receive. A higher benefit for you translates to higher potential spousal and survivor benefits for your family. If you are the higher-earning spouse, delaying benefits can significantly protect your partner's financial future.
- Medicare Eligibility: While Social Security is a key consideration, Medicare is also part of the retirement equation. Eligibility for Medicare begins at age 65, regardless of your retirement age. It is important to sign up for Medicare when you are first eligible to avoid penalties, even if you are not yet taking your Social Security benefits.
Comparison: Retiring at 66 vs. 67
| Feature | Retiring at 66 (for FRA 67) | Retiring at 67 (Full Retirement Age) |
|---|---|---|
| Social Security Benefits | Permanently reduced monthly benefit. | 100% of your monthly benefit amount. |
| Lifetime Income | Lower monthly payments, but start one year earlier. | Higher monthly payments, but start one year later. |
| Earnings Limit | Applies if you are still working, potentially reducing your benefits. | No earnings limit, so you can work and receive full benefits. |
| Income Security | Sooner cash flow, but less guaranteed income for later years. | More substantial, guaranteed monthly income for the rest of your life. |
| Spousal/Survivor Benefits | Can result in lower potential benefits for your spouse. | Higher potential benefits for your spouse and other dependents. |
Conclusion: The Personal Equation
Ultimately, the question of "Is it better to retire at 66 or 67?" has no single right answer. It is a deeply personal decision that requires a thorough assessment of your financial situation, health, and lifestyle goals. For most people with a full retirement age of 67, waiting that extra year to avoid a permanent benefit reduction is a smart financial move. If you are in good health, a more robust income stream for your later years can provide significant peace of mind. To get an accurate picture of your potential benefits, you can use the Social Security Administration's official calculators. By carefully evaluating all these factors, you can make an informed choice that best supports your vision for a healthy and secure retirement.
