For many Americans, the thought of retirement often revolves around reaching the magical age of 65. However, the full retirement age (FRA) for Social Security benefits has been gradually increasing, and for those born in 1959, it will hit 66 years and 10 months starting in 2025.

While the change may seem small, it has important implications on how and when you can claim your benefits. Understanding how these changes affect your retirement strategy is key to making the most of your Social Security benefits.

What Exactly Changed in Social Security’s Full Retirement Age?

The 1983 Social Security Amendments gradually pushed the FRA from 65 to 67, with a schedule to raise it in two-month increments. Those born in 1959 will see their FRA at 66 years and 10 months starting in 2025.

For individuals born in 1960 or later, the full retirement age will be 67. This change means that those who were expecting to retire at 66 years and 8 months (for the 1958 cohort) will now have to wait an additional two months.

For people who plan to retire earlier than their FRA, early filing at 62 results in a significant reduction of monthly benefits—about 29% for those born in 1959, and up to 30% for those born in 1960 or later.

However, delaying your Social Security claim past the FRA can result in an increase of up to 8% annually, capping at a 32% boost if you wait until age 70.

How to Bridge the Gap Between Early Retirement and Full Benefits

For those who wish to retire before reaching the full retirement age, there are a few strategies to make the transition smoother without relying on a full-time job:

1. Phased Retirement: Consider negotiating a three- or four-day workweek. Working part-time, even as little as 15 hours a week, can help cover essential costs like health insurance and groceries without needing to dip into retirement savings.
2. Cash Runway: It’s crucial to have a financial cushion to support you between retirement and full Social Security benefits. Financial experts recommend saving 18-24 months of living expenses in a high-yield savings account or money-market account. This can provide stability without the need to sell investments in a downturn.
3. Monetize Extra Space: If you have extra space in your home or driveway, consider renting it out. Long-term room rentals can bring in $700–$1,000 a month, and driveway parking in busy urban areas can earn $150–$300.
4. Bridge Jobs with Benefits: Some national retailers, such as Costco, Home Depot, and Trader Joe’s, offer part-time jobs that come with medical benefits for employees who work 20-28 hours a week. These jobs can provide you with some income and health insurance while waiting to reach your full retirement age.

Smart Withdrawal and Tax Strategies for Early Retirement

If you plan to retire early or bridge the gap before full Social Security benefits, there are tax-smart strategies to consider:

1. Withdraw from Taxable Accounts: To avoid penalties and let retirement accounts like IRAs or 401(k)s continue growing, consider withdrawing from taxable brokerage accounts first.
2. Roth IRA Withdrawals: Roth IRA contributions (not earnings) can be withdrawn tax- and penalty-free at any age. This provides a zero-tax option to access funds without affecting your tax situation.
3. Keep Modified Adjusted Gross Income Low: Maintaining a low income during early retirement can help you qualify for Affordable Care Act subsidies, saving thousands on health insurance premiums until Medicare eligibility at 65.
4. Side Income: If you need extra income, consider side gigs like tutoring online for $30–$50 an hour, pet sitting, or selling handmade crafts. These options allow you to earn money without committing to a full-time job.

Planning for Future Changes in Retirement Age

While the change from 65 to 67 is nearly complete, lawmakers are already debating the possibility of increasing the full retirement age to 68 or even 69 in the future.

While no new laws have passed yet, it’s a good idea to prepare for these potential changes by creating a flexible retirement plan. Having a cash reserve, part-time income, and tax-efficient withdrawal strategies will help buffer any future shifts in the Social Security system.

Retirement planning has never been more complex, and the gradual rise in the full retirement age is just one of the factors that require careful consideration.

Although the increase in retirement age to 67 may seem like a minor change, it highlights the importance of having a plan in place to navigate the shift.

Building a cash reserve, considering part-time work, and using smart tax strategies will allow you to retire when you’re ready, not when Social Security tells you to.

Keep in mind that flexibility is key, especially as lawmakers continue to debate further increases to the retirement age. (TOTWC NEWS)