For many years, the age of 65 has represented a symbolic point at which Americans envisioned hanging up their work boots and enjoying retirement. However, due to a series of gradual legislative changes, the Social Security system is moving the goalposts. Starting in 2025, individuals born in 1959 will reach full retirement age (FRA) at 66 years and 10 months. For everyone born in 1960 or later, the FRA will be a full 67 years. While this shift might appear minor, its financial effects are far from negligible, particularly for those considering retiring early.
These changes reflect long-term policy decisions intended to keep the Social Security system financially sustainable. Understanding how the adjustments impact benefits and creating a financial plan tailored to these evolving realities is crucial for ensuring a comfortable retirement.
Understanding the Adjustment to Full Retirement Age
The phased increase in the full retirement age can be traced back to the 1983 Social Security Amendments, which were designed to improve the program’s long-term viability. These amendments incrementally raised the FRA from the longstanding age of 65 to 67. The implementation has been gradual, increasing by two months for each birth year.
For example:
- Those born in 1958 face an FRA of 66 years and 8 months
- Individuals born in 1959 will reach FRA at 66 years and 10 months
- Anyone born in 1960 or after will face an FRA of 67
Though people can start claiming Social Security as early as age 62, doing so comes with a permanent reduction in benefits. For those born in 1959, claiming benefits at 62 results in about a 29% decrease in monthly payments. The cut increases to 30% for those born in 1960 or later.
On the other hand, delaying benefits past FRA can result in an 8% annual boost, continuing until age 70. If you wait until then, you can receive up to 32% more each month. These numbers can significantly impact your long-term financial picture.
How to Handle the Income Gap Before Full Benefits
While many workers aim to retire before hitting FRA, doing so without careful planning can harm long-term financial health. Several strategies can help bridge the income gap from early retirement until full Social Security benefits become available.
One practical method is phased retirement. Instead of leaving the workforce entirely, you might negotiate a lighter schedule—working three or four days per week. Even working 15 to 20 hours weekly can help cover essential expenses and slow the depletion of your savings.
Another recommended approach is building a financial buffer. Experts advise saving enough to cover 18 to 24 months of living expenses in a high-yield savings or money market account. This safety net allows you to avoid dipping into long-term investments during volatile market periods.
Unused personal assets can also generate income. For instance, homeowners might consider renting out a spare room, potentially bringing in $700 to $1,000 per month. If you live in an urban area, leasing your driveway for parking could yield $150 to $300 per month.
There’s also the option of taking on a bridge job that offers both pay and benefits. Employers like Costco, Home Depot, and Trader Joe’s often hire part-time workers and provide health coverage for those working 20 to 28 hours weekly. These roles are especially attractive for early retirees looking for flexibility and medical benefits.
Making Withdrawals Work for You
If you retire before age 65 or delay claiming Social Security, your finances will depend heavily on personal savings. Using tax-efficient withdrawal strategies can minimize your tax burden and help your money go further.
One approach is to withdraw from taxable brokerage accounts first. This avoids early withdrawal penalties and allows retirement accounts to continue growing in a tax-advantaged environment.
You can also tap into Roth IRA contributions at any time without penalties or taxes, as long as you only withdraw the contributions and not the earnings. This provides an additional source of tax-free income.
Keeping your Modified Adjusted Gross Income (MAGI) low is another valuable tactic. A lower MAGI can help you qualify for subsidies under the Affordable Care Act, which can dramatically reduce health insurance costs before you’re eligible for Medicare at age 65.
Generating Side Income Can Help Too
If you’re looking for extra income without the responsibilities of a full-time job, side gigs can offer flexibility and supplemental cash flow. Tutoring, for example, pays between $30 and $50 per hour and can be done on your schedule. Other options include pet sitting, dog walking, or selling crafts through platforms like Etsy.
Prepare for the Possibility of Future Policy Changes
Though the FRA currently caps at 67, ongoing discussions in Washington suggest it could rise further. Some proposals have floated the idea of increasing it to 68 or even 69, citing long-term funding concerns for the Social Security system. While these are not yet law, staying prepared for further changes is wise.
To stay ahead, build a plan that allows for delayed benefits if necessary. Emergency savings and alternative income sources offer greater financial flexibility. Regularly reviewing your retirement income plan will also help you adapt to any policy shifts.
Conclusion: Retirement on Your Own Terms
The gradual rise in Social Security’s full retirement age might seem like a bureaucratic detail, but for millions of Americans, it redefines when and how retirement can happen. Without planning, it can mean smaller monthly checks and more years of work. However, by strategically saving, leveraging assets, working part-time, and utilizing smart withdrawal tactics, you can take control of your financial future.
Retirement shouldn’t be defined by a government schedule. With a solid plan in place, you can retire when you’re ready—on your own terms.
By recognizing the impact of changing policies and preparing accordingly, you give yourself the freedom to shape your own retirement journey.