For many years, Americans looked forward to retiring at the age of 65, but that idea is now changing. The Social Security Administration has gradually raised the Full Retirement Age, and this change will directly affect people born in 1959 and later. Starting in 2025, the retirement age for those born in 1959 will be 66 years and 10 months, while anyone born in 1960 or after will see their Full Retirement Age shift to 67.
This adjustment may look small, but the impact is significant. It changes how individuals need to think about savings, timing, and long-term financial planning. Knowing how this affects your retirement strategy is essential if you are approaching these key years.
The New Retirement Age Explained
The increase in retirement age is part of a process that began decades ago as lawmakers adjusted Social Security to keep up with longer life expectancies. For people born in 1959, the age to receive full benefits is now 66 years and 10 months, while for those born in 1960 and after, it is officially 67. Americans can still choose to start collecting Social Security at 62, but the payments will be reduced permanently. Someone born in 1959 would see close to a 29 percent cut, and anyone born in 1960 or later would face a 30 percent reduction. On the other hand, waiting until 70 to claim benefits could increase monthly payments by as much as 32 percent.
Bridging the Gap Before Retirement
Not everyone will want to work until their Full Retirement Age, and some may not be able to. If you hope to step away from full-time work earlier, you will need a plan to cover the gap. Some people gradually reduce their hours so they can keep some income while adjusting to retirement. Others prepare by building an emergency cash reserve large enough to cover 18 to 24 months of living costs. This safety net allows flexibility during market downturns without having to rely on retirement accounts too soon. Homeowners sometimes use their property to generate income, for example by renting out a spare room or even a driveway. Another option is to look for part-time jobs that still include health benefits, which is particularly valuable for those who are not yet eligible for Medicare.
Managing Taxes in Early Retirement
Retiring early or claiming Social Security before the Full Retirement Age does not automatically mean higher taxes if you plan carefully. Many financial advisors suggest beginning withdrawals from taxable investment accounts first. This allows retirement accounts to keep growing tax-deferred for longer. Contributions made to a Roth IRA can be taken out at any time without penalties or taxes, which makes them a useful tool for early retirees. Keeping taxable income at lower levels may also help people qualify for Affordable Care Act subsidies, which can save thousands of dollars on healthcare costs until Medicare begins at age 65. Some retirees supplement their income with flexible work such as tutoring, freelance projects, or pet sitting, which provides extra cash without committing to demanding full-time roles.
What the Future May Hold
The increase in the Full Retirement Age to 67 is almost complete, but it might not end there. Discussions in Washington include proposals to raise it even higher, to 68 or even 69. Nothing has been signed into law, but these ideas highlight the financial challenges facing the Social Security system. According to current projections, the program’s trust fund could be depleted by 2034, which would mean benefits may be reduced to around 81 percent of what has been promised unless reforms are made. Possible solutions include raising payroll taxes or increasing the retirement age further.
Preparing for What Lies Ahead
The best way to handle these changes is to build flexibility into your retirement plan. Combining savings with part-time work, keeping a healthy emergency fund, and making careful decisions about withdrawals can provide stability no matter how the system evolves. Retirement may not look exactly like it did for earlier generations, but thoughtful preparation can still allow you to enjoy financial security and the lifestyle you envision for your later years.