Your Social Security retirement benefit is based on your earnings record over your career. You need at least 40 credits (10 years of work for most Americans) to qualify for retirement benefits, and the 35 years with your highest earnings count toward your benefit level. Assuming you qualify, you can start collecting as early as age 62, but the longer you wait -- up until age 70 -- the higher your monthly benefit will be.
Somewhere between age 62 and age 70, you reach what Social Security calls your "full retirement age." If you start collecting benefits at that age, you'll receive exactly what Social Security calculates your full benefit is worth based on your earnings history. Your full retirement age also matters because once you reach that age, you no longer get penalized for working while collecting Social Security.
So what is your magic age?
Originally, everyone reached full retirement age for Social Security at age 65. But in 1983, when Social Security faced a funding crisis, Congress passed a law that started to increase the full retirement age as part of the plan to shore up the program. As a result of that change, your Social Security full retirement age now depends on the year you were born. The table below from Social Security shows the details:
|Year of Birth||Full Retirement Age|
|1937 and Earlier||65|
|1938||65 and 2 Months|
|1939||65 and 4 Months|
|1940||65 and 6 Months|
|1941||65 and 8 Months|
|1942||65 and 10 Months|
|1955||66 and 2 Months|
|1956||66 and 4 Months|
|1957||66 and 6 Months|
|1958||66 and 8 Months|
|1959||66 and 10 Months|
|1960 and Later||67|
Why that change matters to you
That change in full retirement age can have some fairly big impacts on your retirement plans. For one, if you're planning to retire and start collecting at age 65, you'll get less than your "primary insurance amount" -- i.e., the monthly benefit you're eligible to receive at your full retirement age.
For another, if you're turning 65 and are not collecting Social Security, you'll have to remember to sign up for Medicare anyway. Medicare Part A and B enrollment is automatic if you're turning 65 and already receiving Social Security, but you have to manually enroll if you're not receiving Social Security. If you miss your Medicare enrollment window, it can get expensive, quickly.
If you fail to enroll in Medicare on time, your premiums can jump substantially -- by 10% per year you delay for Part B and by 1% per month you delay for Part D. In addition, you can get turned down for Medicare supplemental plans if you don't enroll during your open enrollment period, which is generally tied to when you accept Medicare Part B.
And finally, remember that if you're below your full retirement age and still working while collecting Social Security, you face a penalty of as much as $1 for every $2 you earn above $15,720 within the year. You eventually get that back once you reach your full retirement age, but it makes little sense to sign up to collect a lesser amount as an income supplement and then lose even that little bit of extra boost due to the penalty.
What you can do about it
The rules regarding your full retirement age and how it interacts with your Social Security and Medicare benefits and your ability to collect while working can be complex. Unless you're a member of Congress, however, there's little you can do to change those rules. What you can do, however, is plan your end-to-end retirement around how those rules will affect you. The four key ages that matter to you are:
- Age 62: When you first qualify to take early Social Security Retirement benefits.
- Age 65: When you first qualify to take Medicare.
- Your full retirement age: When you can start collecting your full Social Security benefits and work while collecting Social Security without a penalty.
- Age 70: When Social Security stops increasing your benefit for every month you wait to collect.
With those milestones in mind, it gets much easier to build your retirement plan around them. That should help you make better decisions based on your particular circumstances.