Many Americans anxiously await the day when they may formally retire.
There’s no agreement when asked what age they expect it to be.
According to one poll, the average age of retirement is 62.
That’s also the age at which people can begin claiming Social Security retirement benefits if they’re eligible.
Those that claim early lose benefits. They get the full benefits if they wait until full retirement age (FRA), usually 66 or 67, depending on when they were born. If they wait until age 70, their benefits will grow by 8% every year.
Last week, the House of Representatives adopted a retirement plan to raise the age for required minimum payouts from 72 to 75. If approved by the Senate, the modification would take effect in 2032.
According to Mark J. Warshawsky, a former deputy commissioner for retirement and disability policy at the Social Security Administration (SSA), the idea reflects the fact that many individuals today are healthier than the previous generations. The tax law and government programs, including Social Security, should cascade.
Sure, no significant changes to Social Security are likely.
“It has been the third rail of politics,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
But it doesn’t mean the matter isn’t urgent.
The SSA’s trust funds are expected to run out around 2034. That’s when 78% of promised payments would be paid, the agency stated last year.
Politicians can raise benefit taxes, payroll taxes, or the retirement age to save the program. Changes made might include all three.
Notably, Social Security proponents oppose changing the retirement age. Some claim that raising the full retirement age (FRA) constitutes a benefit decrease.
Changes in the retirement age
President Ronald Reagan changed the retirement age in 1983.
It’s still being phased in today, raising the full retirement age (FRA) from 65 to 67.
For example, moving from 65 to 66 slashed the benefit payments by 5%.
The Social Security retirement age may be raised in the future. Last year, Rep. John Larson, D-Conn., sponsored the Social Security 2100 Act: A Sacred Trust, which would keep those standards and increase payments in some ways. But the law only lasts five years.
Separately, the SSA has assessed the financial impact of other proposed changes to the age requirements.
Akabas expects Congress to pass a Social Security package that includes a change in the retirement age in the not too distant future. It’s hard to say in two years or ten years.
Experts suggest that the full retirement age (FRA) might be gradually raised by a year or two.
Legislators might also raise the initial retirement age to 62 and the maximum age for postponing benefits and earning benefits increases to 70.
Reductions in benefits may not be as severe for individuals compelled to retire at the earliest possible age, according to Akabas.
Planning for future benefits
In 2000, the average retirement age was 61 or 62. Warshawsky says the figure is now around 66.
“In only 20 years, the retirement age has risen significantly,” Warshawsky added. “People are working longer.”
As career possibilities alter, more individuals might retire sooner than expected.
That emphasizes the need to plan for your retirement years. That’s problematic since Social Security is subject to modification.
Those over 60 shouldn’t be concerned about potential changes affecting their benefits. Those aged 45 to 60 could expect a 5% drop in benefits. A 10% to 15% reduction is conceivable for those even younger.
People of all ages should also prepare for the worst-case situation when the program can only pay a part of benefits, resulting in a 24% benefit decrease for retirees.
The actual value of planning is to cover all your bases.
Mack Hales has spent the past 4 decades helping clients prepare for retirement and manage their finances successfully. He also works with strategies that help clients put away much more money for their retirement than they could in an IRA or even a 401k. We involve the client’s CPA and/or their tax attorney to be sure the programs meet the proper tax codes.
Mack works with Federal Employees to help them establish the right path before and after retirement. The goal is to help the client retire worry-free with as much tax-free income as possible and no worries about money at risk of market loss during retirement.
Mack has resided in Gainesville, GA since 1983, so this is considered home. Mack is married to his wife of 51 years, has two boys and five grandchildren.