Michael Callahan
Full retirement age doesn’t necessarily have anything to do with when you stop working. Many people retire long before reaching their FRA, or continue working long after. Your full retirement age (sometimes called the normal retirement age) is simply the age at which you can receive your full retirement benefits, if you wait until your FRA to claim Social Security.
Full retirement age is an important factor in Social Security and retirement planning. You can’t control or change your full retirement age, since it’s determined by your birth year, but you and your financial advisors will consider your FRA as you craft a strategy that maximizes your monthly benefit.
Determining Your Full Retirement Age
When the Social Security Act was passed in 1935, it established 65 as the retirement age. In 1940—the first year in which retirement benefits were available —only 53.9 percent of men and 60.6 percent of women lived to be 65. A man who reached this milestone had an average of 12.7 more years to live, while a 65-year-old woman in 1940 had an average remaining lifespan of 14.7 years. By 1990, 72.3 percent of men and 83.6 percent of women survived to 65, with an average remaining lifespan of between 15 and 20 years.
Recognizing that lifespan was going to continue to rise, and that Social Security’s solvency was at risk, Congress passed legislation in 1983 that raised the existing full retirement age from 65 to 67. The adjustment began right away: People who turned 65 in 1984 didn’t reach full retirement age until they were 65 and two months. An additional two months of waiting time was added to every subsequent birth year, with an exception for Baby Boomers born between 1943 and 1954. Everyone in this group had their FRA set at 66 years old.
For people born later in the 1950s, the full retirement age ranges from 66 and two months (birth year 1955) to 66 and 10 months (birth year 1959). For anyone born in 1960 or after, the full retirement age is 67. Note that anyone born on January 1st should use the prior birth year to determine full retirement age. Someone with a birthdate of 1/1/60 will reach full retirement age at 66 and 10 months, while someone born on 1/2/60 has an FRA of 67.
(Young workers may see the retirement age change again by the time they’re ready to collect Social Security. As the reserves continue to shrink over the coming years, it’s possible that we’ll see a push to raise the FRA past age 67. But there’s nothing conclusive to worry about yet.)
What Happens When You Reach Full Retirement Age?
Nothing necessarily happens when you reach full retirement age.
Remember, this is just the point at which you can get 100 percent of the monthly benefit you’ve earned. If you choose to, you may claim retirement benefits at any point after your 62nd birthday. Some workers retire at 62 and start living off their benefits right away. Others retire before reaching their full retirement age and live off of a spouse’s income or benefits, or some other income source, rather than taking benefits early. There are a lot of different ways to structure your retirement planning and Social Security benefits.
Planning Around Your Full Retirement Age
Social Security planning should start long before you reach full retirement age. Talk to your financial advisor about when you hope to retire, and how those plans will affect your benefits. Your full retirement age will always be a factor in Social Security planning; the FRA comes up in a lot of Social Security’s many rules.
For example: If you plan to claim benefits and keep working before reaching full retirement age, and you earn above a set earnings cap, your benefit will be reduced by $1 for every $2 you earn above the cap. In the year of your retirement, the benefit will be reduced $1 for every $3 you earn above the limit. That’s going to be an important consideration as you budget for your early- to mid-60s. If your spouse plans to claim spousal benefits, their full retirement age will also affect their benefit amount, so that should be another part of the discussion with your financial advisor.Sachetta, LLC’s advisors can help you navigate your options around Social Security. Even if your full retirement age is years away, we recommend you start Social Security planning now. Understanding how your FRA affects your earnings is a critical part of maximizing your retirement benefits. Contact us today.
Michael J Callahan, CPA, CFP®, MST
Michael is a Certified Financial Planner™ practitioner, Certified Public Accountant, and holds a Master’s Degree in Taxation from Bentley University. Mike has been involved in personal financial planning, as well as both business and individual taxation for more than 15 years. Our ideas about money are formed by our life experiences. Over the years, Mike has seen those close to him make common money mistakes from not having enough life insurance, to not doing the proper estate planning. When he received an inheritance in college and started looking into how he could use it to achieve his goals, he realized that he could use those experiences to help others. He changed his major to Finance, and the rest is history.