Your Full Retirement Age and Social Security Benefits
When considering retirement, your Full Retirement Age (FRA) is a critical benchmark. For anyone born in 1960 or later, the FRA is 67. Claiming Social Security benefits before this age results in a permanently reduced monthly payment. Conversely, waiting until age 67 means you receive 100% of your earned benefit, and delaying further until age 70 can increase your benefit even more through delayed retirement credits.
The Financial Impact of Retiring at 64
Retiring at age 64 means claiming your Social Security benefit three years before your FRA. This decision comes with a significant and permanent reduction in your monthly payment. For a worker whose FRA is 67, claiming benefits at 64 can mean a reduction of 20-25%. While this provides an earlier start to retirement, it’s important to understand the long-term impact of this smaller monthly check. This choice is often influenced by factors such as a desire to leave the workforce early, health concerns, or having a robust alternative retirement income stream.
The Financial Impact of Retiring at 67
Choosing to retire at 67 means you receive your full, unreduced Social Security benefit. For those who are still healthy and financially able to work, these extra years can be highly valuable. Not only does it secure a higher monthly Social Security payment for life, but it also provides more time to build your retirement savings. For each year past your FRA that you delay claiming benefits (up to age 70), you earn an additional 8% in delayed retirement credits, making your monthly check even larger.
The Healthcare Cost Equation
One of the most significant considerations when retiring early is how you will manage healthcare costs. Medicare eligibility begins at age 65 for most people. If you retire at 64, you will have a one-year gap in coverage that you'll need to bridge. This could mean relying on a spouse's plan, purchasing expensive COBRA coverage, or buying a plan on the marketplace. Healthcare is a major expense in retirement, and this coverage gap can be a costly factor. Waiting until 67 means your retirement begins with Medicare coverage already in place, alleviating a major financial concern.
The Role of Personal and Lifestyle Factors
Beyond the raw numbers, your personal circumstances and desired lifestyle should heavily influence your decision. Think about what your retirement will look like and what you hope to achieve during those years. Consider questions like:
- What is your current health status? If you have health concerns or a family history of a shorter lifespan, taking benefits at 64 might make more sense to ensure you can enjoy them.
- How do you feel about your job? If your job is physically demanding or a source of great stress, retiring earlier could significantly improve your quality of life.
- What are your goals for retirement? If you have travel plans, hobbies, or wish to spend more time with family, retiring at 64 gives you a head start on these activities.
- Do you have a spouse? Your decision can affect survivor benefits. If you have a spouse who relies on your income, waiting until 67 to maximize your benefit can secure a larger survivor payment for them.
A Side-by-Side Comparison: 64 vs. 67
To help visualize the trade-offs, here is a comparison of key factors when choosing between retiring at 64 and 67.
| Factor | Retiring at 64 | Retiring at 67 |
|---|---|---|
| Social Security Benefits | Permanently reduced by 20-25%. | Full 100% benefits. Potential for delayed retirement credits if waiting longer. |
| Workplace Earnings | Potential for temporary benefit reduction if earnings exceed the annual limit. | No earnings limit, can work part-time with no penalty. |
| Healthcare Coverage | A one-year gap exists between retirement and Medicare eligibility at age 65. | Starts with Medicare coverage in place, no gap to cover. |
| Retirement Savings | Less time for investments to grow and for additional contributions. | More time to save and potentially take advantage of catch-up contributions for those 50+. |
| Lifestyle Flexibility | More years to enjoy hobbies and travel while potentially healthier. | Fewer years of retirement to fund, potentially more financial security in the long run. |
The “Break-Even” Point Analysis
Many financial advisors use a break-even analysis to show when a higher benefit from waiting will make up for the money foregone by not claiming earlier. For example, if a person receives $450 more per month by waiting from age 62 to 67, they would need to live until age 78.7 to break even on the money they gave up in those five years. This calculation is important, but it is purely financial and doesn't account for your quality of life during those years. A financial expert can run a personalized analysis based on your expected benefit and projected lifespan.
How to Make Your Decision
1. Assess Your Financial Health
Review your current savings, investments, and any other income sources. How reliant are you on Social Security? If it's your primary source of income, waiting until 67 is often the financially wiser choice. T. Rowe Price provides general benchmarks for retirement savings based on your age relative to your income, which can help assess if you are on track.
2. Prioritize Your Health
Consider your and your family's health history. If you have significant health concerns, the earlier retirement might allow you to enjoy your time more freely. However, remember to factor in the cost of private insurance to bridge the gap until Medicare eligibility at 65.
3. Imagine Your Retirement Lifestyle
What do you truly want to do? If working longer means you can travel more, take up a new hobby, or spend time with loved ones without financial strain, delaying retirement might be a good fit. Alternatively, if your goal is to leave the workforce as soon as possible, the reduced benefits at 64 might be a trade-off you are willing to make.
4. Consult a Professional
Ultimately, there is no one-size-fits-all answer. Speaking with a qualified financial advisor is the best course of action. They can help you model different scenarios, considering your specific financial situation and goals, to determine the best age for you to retire.
For more detailed information on Social Security benefits and calculators, visit the official Social Security Administration website.
Conclusion: The Right Age is a Personal Choice
Deciding to retire at 64 or 67 is a complex choice with significant financial and personal implications. While delaying retirement until age 67 can provide a larger, more secure monthly benefit and seamless healthcare coverage, retiring at 64 offers earlier freedom. Your health, lifestyle aspirations, and financial preparedness are all crucial factors in making the best decision for your unique circumstances. Careful planning and professional guidance are essential to ensure a healthy, secure, and happy retirement.
