Americans are finding out they might have to work longer before they can retire. For the first time since Social Security started 90 years ago, the full retirement age is set to reach 67 by 2026.
This change raises a crucial question: will Social Security still be viable by the time people reach that age? New forecasts suggest the program could run out of funds by 2034.
The Social Security Act, signed by President Franklin D. Roosevelt in 1935, aimed to provide a stable income for retirees over 65. Kenneth S. Davis, a biographer, described it as a landmark in American social legislation. But come next year, getting benefits without penalties means waiting until age 67.
As individuals edge closer to retirement, they face big decisions regarding when to start collecting Social Security payments. This decision can have a significant financial impact.
When Should I Retire: 62, 65, 67, or 70?
The right timing for Social Security benefits really depends on personal circumstances.
Americans can choose to retire early at 62, but they’ll see a permanent reduction in monthly benefits. The first group facing a full retirement age of 67 is those born in 1959.
To break down the numbers: if the full retirement age (FRA) is 67 and the baseline monthly benefit is $1,800, things look like this:
- Claiming at 62 yields only 70% of the total, about $1,260 a month.
- At 65, the amount climbs to 87%, or $1,560.
- Waiting until 67 gets the full $1,800.
- If you hold off until 70, you’ll see the benefit rise to around $2,323, which is about 124% of the base amount.
Once you hit 70, the benefits don’t increase any further.
What Led to This Change?
This increase in retirement age is a gradual shift, following a series of reforms from over 40 years ago, initiated by Congress and signed by President Ronald Reagan.
Initially enacted during the Great Depression, the Social Security Act faced a major crisis in 1983 when the system risked financial collapse after two recessions, leading to more payouts than income. The foundation of Social Security was laid when life expectancy was only 61, resulting in fewer retirees.
Fast forward to 1983, when life expectancy had risen to over 74 years. Now, the current average stands closer to 79. Additionally, the worker-to-retiree ratio has shifted dramatically from 42-to-1 down to around 3.6-to-1 today.
As a result of the law changes, anyone turning 65 in 1990 was the last cohort to have a full retirement age of 65. Since then, the retirement age has been gradually increasing by two months per year. By 1992, it was 65 years and 4 months. From 1996 to 2007, individuals turning 65 were at 66. This progressive change continues until the full retirement age reaches 67 for those born after 2026.
