Retirement at 65

When it comes to retirement in the United States the most common number used when referring to retirement is 65. Unfortunately, for most people that isn’t the right number to be using because it is no longer the full retirement age for most people. All that changed when the Reagan Administration reworked the Social Security system in order to keep it from collapsing. 

The changes made it so anyone born before January 1, 1943 has a full retirement age of 65. For those born January 2, 1943 through January 1, 1955, the full retirement age is 66. Even so, there are reason to retire at age 65 instead of an earlier age of 62. Retirement at age 62 means having significantly lower retirement benefits. It also means having a much lower threshold for earnings before having to some social security retirement benefits.

So why retire at age 65? For those born before 1954, retiring at age 62 means a 25 percent reduction in social security benefits and the reduction gradually increases until those who were born after 1960 will see a 30 percent reduction in benefits. Therefore, retiring at age 65 means a 5-6 percent reduction based on the year of birth according to the Security Administration. To determine an individual’s social security benefits at from age 62 and above, it is best to check the calculator provided by the Social Security Administration.

For those looking to retire as early as possible, another reason to wait until age 65 is because Medicare, the health care system for the elderly takes effect at age 65. This makes retiring at age 65 much more attractive when the cost of healthcare insurance is considered. Add in the likelihood that healthcare costs will probably increase before they ever stabilize, then retirement before 65 can mean a huge gamble unless the person retiring early has their own health insurance.

Other factors to consider include retirement accounts such as 401(k)s, IRAs, the Thrift Savings Plan (TSP) and other such financial tools. By waiting to age 65 to retire it gives these funds more time to increase in value and also allows more catch-up contributions. The additional contributions to such plans, allowed after age 50, can provide for a less worrisome retirement from a financial perspective.  For those who have a pension plan, staying longer generally means having a larger pension and it also increases the base amount due to the annual raises that most employers provide when the economic situation allows. 

Retirement at any age is a personal decision that is tempered by many factors that include health, finances and family. For each person it is an individual choice and attempts to define a one-size fits all policy or plan is doomed to failure. At the same time, failing to plan for retirement has long term consequences for the retiree and can make the golden years much less attractive.