The retirement age in America is going to change from April 2025 – know what effect it will have on you
From April 2025, a big change is going to happen in America regarding retirement. Now millions of employees across the country will feel the effect of increasing retirement age. This change will not only affect the age, but will also have a direct impact on your financial planning and social security benefits related to it.
This change in retirement age has not happened suddenly, but was being implemented gradually for many years. But from April 2025, this change will reach an important turning point.
What will be the retirement age now?
In America, ‘Full Retirement Age’ i.e. Full Retirement Age (FRA) is the age when you can take full advantage of your social security benefits without any deduction. Earlier this age was considered to be 65 years, but now it is gradually increasing to 67 years, especially for those who are born in 1960 or later.
For those who assumed that they would be able to retire at the age of 65, this may come as a bit of a shock. Many people are confused about this change – they do not understand when they can retire now and how much money they will get.
What will happen if you take early retirement?
You can still claim Social Security benefits at the age of 62, but keep in mind – if you retire before 67, your benefits will be drastically reduced. Retiring at 62 can reduce your pension by up to 30%. This means that if your full pension was $2,000 a month, you will get only $1,400.
Now the gap between FRA and Early Retirement has become 5 years. Due to this gap, people will have to depend more on their own savings and investments.
What is the reason for the change?
This is not a sudden step. Ronald Reagan’s government passed these laws in 1983 to keep the Social Security system stable. At that time, the average age of American citizens was about 61 years, and retirement was at 65.
Now the average age is about 79 years. Due to people living longer, the government started gradually increasing the retirement age, so that the system could last longer.
Who will be most affected?
- Those born in 1960 will now be able to get full benefits directly at the age of 67.
- On the other hand, those born in 1957, 1958 or 1959 have FRA of 66 years 6 months, 66 years 8 months and 66 years 10 months respectively.
For many people who do physically demanding work, such as manual labor, it will be difficult to work till 67. On the other hand, people with low income want to retire early, but the benefits they get are very less.
What strategy should be adopted?
Financial experts say that you have to be responsible for your own retirement. Social Security is just one part. The other two important parts are:
- Personal savings and investments (such as 401k, IRA)
- Part-time job or pension if possible
Some people adopt this strategy that they first withdraw a part of their savings and spend it so that they can delay claiming Social Security. By doing this, they get more benefits later, which keep increasing till the age of 70.
Companies’ preparation
Many companies have now started giving their employees the option of phased retirement. This gives employees an opportunity to shift from full-time to part-time and they also keep getting benefits.
In addition, many companies are now providing training on social security planning in financial wellness programs to help employees make the right decisions at the right time.
What’s next?
Although no major new changes have been decided for now, there is a possibility of further improvements in the social security system in the future. Experts believe that if the government does nothing, the system may run out of funds by the mid-2030s and then only 80% of the benefits will be given.
The following may be the changes that can happen in the future:
- Further increase in retirement age
- Increase in social security tax
- Change in the benefit formula
- Mental and emotional changes
Retirement is not just a financial change, but also a major mental change. Now people remain healthy and active even at the age of 60-70. Therefore, many people now do not retire completely but work for some time, learn new skills or change their career.
Some people move from physical jobs to jobs like office or consulting so they can work longer and more comfortably.
Conclusion
The new retirement age rules that will come into effect from April 2025 make retirement planning even more important. It is now important that every individual makes a flexible and personalized plan based on their age, income, health and needs.
Retirement is no longer a one-day event, but a gradual transition in which the right decisions will determine the quality of your life.
FAQs
Is it still possible to retire at 62?
Yes, you can still retire at 62, but this may result in a permanent reduction in your Social Security pension by about 30%.
Will it make a difference if I’m 66?
Yes, it will make a difference – if you were born between 1957-1959, your FRA will be between 66 years 6 months and 66 years 10 months, respectively. You’ll need to look up your full retirement age based on your birth date.
How will the retirement age change affect my pension?
If you retire before the full retirement age, your monthly amount will be reduced. Retiring early will affect your lifelong earnings.