The average age of retirement today is 62. But the US retirement age for Social Security is currently 66 to 67…and it may rise even higher in the coming years, along with cuts to Social Security benefits, as Congress takes actions to ensure the system’s solvency. “If you are trying to answer the question, When can I retire?” financial advisor Nicholas Bunio, CFP, told Bottom Line Personal, “it’s more effective to think of retirement age as a series of six numbers that cover Social Security, health insurance, tax-deferred accounts and tax planning.”
THE SIX CRUCIAL RETIREMENT NUMBERS
59½: You can start withdrawing funds from retirement accounts such as traditional 401(k)s and IRAs without incurring a 10% early-withdrawal penalty once you reach 59½. What to know: The withdrawals still are subject to ordinary income taxes.
62: This is the earliest age that you can start claiming Social Security benefits, and 29% of people claim their benefits at age 62, often because of financial necessity or health issues What to know…
Benefits are permanently reduced by about 30% a year compared to waiting until your Full Retirement Age (FRA) to claim.
If you are claiming as a spouse at age 62, the reduction is even steeper, often resulting in a 35% reduction.
Your break-even point is about age 79 if you delay to age 70, you will get the highest monthly income amount, but that means you’ll have to live to at least age 79 because the total cumulative money you receive from the larger check will surpass the total amount you would have collected by claiming early. If you don’t expect to live to 79, it might be better to claim sooner (such as 68).
If you continue to work while receiving benefits before your FRA in 2026, you face temporary withholdings if your income exceeds certain limits—$1 in benefits is withheld for every $2 earned above $24,480 per year.
65: This is the age at which you are eligible for Medicare, the Federal health insurance program. What to know…
If you are not yet receiving Social Security: You must manually apply for Medicare Parts A and B by three months before or after your 65th birthday (a seven-month window). If you miss this window, your Part B premium will permanently increase by 10% for every 12-month period you delayed.
If you already receive Social Security, you are automatically enrolled in Medicare Parts A and B.
If you or your spouse are still working and have insurance through a “large” employer (20+ employees), you may be able to delay Part B without penalty.
66 to 67: This is Full Retirement Age (FRA), at which you receive 100% of your earned Social Security benefits (age 67 if you were born in 1960 or later)—about 30% of all recipients claim Social Security at FRA. What to know: You can earn unlimited income from a job without any benefits being withheld once you reach FRA.
70: This is the latest you can defer claiming Social Security. Only 10% of people wait until 70. What to know…
You gain 8% in annual benefits permanently for each year you delay after FRA, but these additional benefits no longer increase after 70.
If you are the higher earner in a marriage, delaying your claim increases the future survivor benefit for your spouse, since he/she will inherit your higher monthly amount after you pass.
73: This is the age at which you must start mandatory withdrawals from tax-deferred retirement accounts, known as Required Minimum Distributions (RMDs). RMDs can significantly impact your tax bracket and Medicare premiums if not managed strategically. What to know: Aggregate your IRAs but separate your 401(k)s. Calculating RMDs correctly is essential to avoid penalties on any missed amount.
For IRAs: Calculate the RMD for each IRA separately, but you can withdraw the total sum from just one account.
For 401(k)s: You must calculate and withdraw the RMD separately from each workplace plan you own.
Leverage the “still working” exception if you are still employed (and do not own more than 5% of the company). You can delay RMDs from your current employer’s 401(k) until April 1 of the year following the year you actually retire.
PLANNING FOR A HIGHER FULL RETIREMENT AGE
Social Security’s main trust fund is projected to run out of reserves around 2033. Here is what I’m advising my clients…
If you are within 10 years of retirement or already in retirement and receiving benefits, maintain your current retirement plans. Any changes Congress is likely to make will be phased in over many years and mostly affect new retirees or future beneficiaries.
If you are under age 55, you face the very real possibility of a higher FRA and/or less in payouts. Plan to meet your expected income needs in early and mid-retirement without including Social Security payments at all. Instead, view Social Security as an annuity that keeps up with inflation and serves as insurance if your projections are wrong or unexpected events occur and you run out of money in late old age…or as discretionary funds you can treat as a windfall. You can spend them in ways that are important to you such as lifestyle splurges, gifts to children or protection against higher healthcare costs.
