The rules surrounding Social Security benefits are changing, and if you were born after 1960, you’re going to feel the difference. The most significant change is that the full retirement age (FRA) for receiving Social Security benefits has been increased to 67. This shift impacts younger baby boomers and Generation X, and it’s essential for them to understand what these changes mean for their future retirement planning. This article will break down these changes, their impact, and what you need to do to prepare for a secure retirement.
What is Full Retirement Age (FRA) and Why Does it Matter?
Full Retirement Age (FRA) is the age at which you are eligible to receive your full Social Security benefits. In the past, the FRA was 65 years old. However, due to longer life expectancies and the need to keep the Social Security system financially stable, the government has decided to raise the FRA. Now, for people born after 1960, the full retirement age is set at 67.
This change means that if you were born after 1960, you must wait until you turn 67 to claim your full Social Security benefits. For example, if you were born in January 1960, you won’t be eligible for full benefits until January 2027, when you turn 67. This shift is a response to people living longer, which means the system needs to adjust to ensure it’s financially sustainable for future generations.
How the FRA Change Affects Retirement Planning
The increase in FRA is just one of the many challenges that come with preparing for retirement. Many people, especially those born after 1960, are already facing financial difficulties. Research shows that a significant number of people from younger generations are not adequately prepared for retirement. Generation X, born roughly between 1965 and 1980, has an average savings of just $150,000. However, many financial experts suggest that $1.5 million or more is necessary to retire comfortably.
In addition, a startling 40% of Gen Xers have not saved anything for retirement, making it harder for them to rely on Social Security as their primary income source. With Social Security replacing only about 40% of your working income, relying solely on these benefits could leave a significant gap in what you need to live comfortably during your retirement years.
Why More People Aren’t Waiting Until 70 to Claim Social Security
While it is possible to increase your Social Security benefits by waiting until the age of 70 to claim, only a small percentage of Americans take advantage of this option. By waiting until 70, you can receive up to 25% more in benefits than if you claim at your FRA of 67. However, a study by the Transamerica Center for Retirement Studies found that only 4% of Americans wait until 70 to claim their maximum benefits.
This low percentage may be because most people don’t have the luxury of waiting due to financial need, or they don’t fully understand the advantages of waiting to claim benefits at a later age. This highlights the need for better financial education, especially for those born after 1960, who will face an even higher FRA requirement.
How to Prepare for a Secure Retirement
With the increase in FRA, it’s more important than ever for people born after 1960 to start planning for their retirement. Here are some steps you can take to ensure a better financial future:
- Start Saving Early: The earlier you begin saving, the more time your money has to grow. Even small contributions to retirement accounts like a 401(k) or an IRA can add up over time.
- Create a Budget and Stick to It: A well-thought-out budget can help you save for retirement. Keep track of your spending and focus on putting away money for the future.
- Increase Your Savings: If you haven’t saved enough for retirement, consider increasing your savings rate. Aim for at least 15% of your income to go towards retirement.
- Diversify Your Investments: Investing in a mix of assets, such as stocks, bonds, and mutual funds, can help ensure that your retirement savings grow at a steady rate.
- Consult a Financial Advisor: A professional advisor can help you create a retirement plan tailored to your needs and goals. They can guide you through the complexities of Social Security benefits and other retirement planning strategies.
Conclusion: Taking Action for Your Future
As the full retirement age continues to rise, understanding these changes and how they affect your retirement plans is crucial. For those born after 1960, the shift to a full retirement age of 67 can seem daunting, but with careful planning, it’s possible to ensure that your retirement is financially secure. Proactive saving, investing wisely, and educating yourself about your benefits can help you make the most of these changes. By taking steps now, you can build a solid foundation for a comfortable and secure retirement, no matter when you plan to retire.
Must Visit: California State Online