The idea of being able to retire at age 65 or 67 is changing. If there’s one thing we should learn, it’s not to blindly trust the government. Leaving our destinies in the hands of something like the states can cost us dearly. Specifically, for millions of Americans, the government has moved the goalposts again. Worst of all, we can’t blame current legislation or the Trump administration.
If you are a young or middle-aged person right now, this should be the wake-up call you need. The Social Security pension system is under tremendous pressure. If you want to enjoy a pension tomorrow, you will need to plan more carefully and save much more than previous generations were expected to. Social Security should never be a complete retirement plan, but rather a partial part of your savings for old age. Here we explain what has changed, how it affects your check, and how you can take control of your financial future if you still have at least a decade to go before retirement age.
The Current Retirement Age
The Social Security Administration believes that the traditional retirement age is 65. The reality is that this has been gradually changing for decades. The real adjustment was made with the Social Security Amendments Act…in 1983. More than 40 years ago, Congress realized that the population pyramid was not sustainable. That is why it approved a plan to gradually increase the retirement age from 65 to 67.
The main reason was the increased life expectancy in the United States. When the pension system was created in 1935, it was sustainable because there were 16 workers working to pay the pension of a single retiree. Today, there are only 2.5 active workers paying the pension of each retiree. This is why the retirement age has been changing: people born between 1943 and 1954 had an FRA of 66. For those born in 1959, their FRA is 66 years and 10 months. Finally, for people born in 1960 and later, the FRA is definitely 67.
If you want to retire earlier, you will not be able to access 100% of your estimated pension benefits. According to my calculations, younger generations will have to wait two years longer than their parents and grandparents to receive their full pensions. The problem is that life expectancy has also increased. The pension system was created on the assumption that people would live about five years longer… not 20 years longer on average.
The Math Behind Retirement
The minimum age to start receiving benefits is 62. However, this choice comes with a permanent penalty, meaning your check will remain reduced by 30% forever. You will only receive 70% of the full benefits. On the other hand, if you wait until your full retirement age, you will receive 100% of your primary insurance benefit. The maximum age for your benefits to continue growing is 70. This is the most rewarding strategy, as you earn delayed retirement credits. These credits increase your check by 8% annually, which is a fairly generous increase. In total, if you wait until age 70, you will receive a total of 124% of your PIA.
There is never a financial reason to wait to retire beyond age 70. Another thing is if you love your job and feel strong and eager to continue working.
Social Security operates under a “pay-as-you-go” system. Simply put, the money that today’s workers pay in payroll taxes is used to pay the benefits of today’s retirees. According to the latest projections in the Trustees’ Report, the combined Trust Fund will be depleted around 2034.
Lawmakers are proposing to raise the age to 68, 69, or even 70 for younger generations (especially those born after 1970). If you are in this group, we strongly recommend that you start looking into private pension plans… Because it is clear that we are not going to receive a decent public pension.
