Deciding When to Retire: A Guide to the Four Key Ages
Many people in the United States find themselves confused about the right time to stop working. The rules around retirement can seem complicated because there is no single age when everyone is expected to retire. Instead, different programs and benefits become available at different times in your life.
For example, you can start collecting government retirement benefits at one age, sign up for public health insurance at another, and wait even longer to get your largest possible monthly payment. Because of these overlapping rules, the typical age when people actually stop working varies from person to person. While some research shows the average retirement age is 62, other data suggests it is closer to 63 for women and 65 for men. Ultimately, retirement is a personal decision based on health, savings, and government rules.
How the Standard Retirement Age Changed
In the past, the path to retirement was much simpler. For decades, most Americans viewed 65 as the standard age to stop working. This was the age when people could receive their full government retirement benefits, sign up for federal health insurance, and start collecting traditional company pensions.
However, the system changed in the 1980s. To help keep the national retirement program funded, lawmakers decided to gradually raise the age for full benefits to 67. Around the same time, traditional pensions began to disappear. They were replaced by personal savings plans, like 401(k) accounts, which reward people for staying in the workforce longer. Because of these changes, the average retirement age rose by about three years over a recent thirty-year period.
The Four Milestone Ages of Retirement
Instead of looking for one single retirement age, it is more helpful to understand the four key milestones that define the process today.
Age 62: The Earliest Option
While this is younger than what many consider the traditional retirement age, it is actually the most common age for Americans to stop working. It is also the very first year you are allowed to claim government retirement benefits. Many people choose to take their money as soon as it becomes available, even though doing so reduces their monthly payment.
Age 65: The Health Insurance Milestone
Even though this is no longer the age for full retirement benefits, it remains incredibly important. This is the age when most Americans become eligible for federal health insurance. For millions of workers, having access to affordable healthcare is the key factor that makes retirement possible. Statistics show that the average person starts claiming retirement benefits at this age.
Age 67: The Full Benefit Milestone
For anyone born in 1960 or later, this is the official age to receive 100% of your promised monthly retirement benefit. If you choose to start collecting benefits at age 62 instead of waiting for age 67, your monthly check will be permanently reduced by about 30%.
Age 70: The Maximum Payout Milestone
Your monthly retirement benefit does not stop growing once you reach age 67. If you delay claiming your benefits, your monthly check will increase by 8% for every year you wait, up until you turn 70. Because of these bonuses, a person who waits until age 70 to claim their benefits will receive a monthly check that is about 76% larger than if they had started at age 62. For this reason, financial experts often recommend waiting as long as possible to maximize your lifetime income.
Why People Are Working Longer
The average retirement age in America went down for many decades, but that trend reversed around 1990. Today, people are staying in the workforce longer for several reasons. First, Americans are living longer and enjoying better health in their later years. Second, many modern jobs are less physically demanding than they used to be, making it easier to work at an older age.
Additionally, changes in workplace benefits have played a major role. With fewer companies offering lifetime pensions or retiree health insurance, workers must rely more on their own savings. Working longer gives people more time to build up their retirement accounts and delays the need to draw from them.
What the Future Holds
The rules of retirement may change again in the coming years. The national retirement system is facing financial challenges and is projected to experience a funding shortfall by 2032. If no changes are made before then, benefits could be cut by more than a quarter.
To prevent this shortfall, policymakers are considering several options. One of the most common proposals is to raise the full retirement age once again, potentially moving it from 67 to 68. If this change occurs, future workers will need to adjust their plans to navigate a new set of retirement milestones.