What’s the right retirement age for you? It’s complicated.
In the United States, you’re eligible to begin collecting retirement benefits from the Social Security Administration (SSA) as early as 62. But there isn’t a single, specific retirement age for the USA.
Your retirement age is more of a personal decision, with several factors that we’ll dive into below.
You can approach this question from several different perspectives, weigh the factors, and find the right retirement age for your own situation.
United States retirement funding — a brief history
Early on, the modern concept of a “retirement age” did not exist. Instead, extended families cared for older family members, and governments sometimes offered support for poorer people.
Per the SSA’s own Brief History resource, England had “Poor Laws” designed to tax the population to provide welfare for the poor as early as 1601.
When the English colonists arrived in North America, they brought these ideas with them. Localized efforts to provide for the poor and those unable to work existed, but not on a larger scale.
After the Civil War, the first full-fledged national pension program was developed to support widows, orphans, and disabled war veterans.
Military pensions continued to exist, grow and shift for decades.
Private pensions existed as early as the late 1800s, with employers withholding a portion of employee compensation to pay out to older workers later in life.
Early on, these private pensions were unreliable, and not all employees qualified. But company involvement in retirement funding continues today.
After the Great Depression in the 1930s, states began forming “Old Age” pension systems.
The Social Security Administration
In 1935, President Franklin D. Roosevelt signed the Social Security Act into law. This created the Social Security Board (SSB). In 1946, the SSB was replaced with the current Social Security Administration.
In the 1950s, the SSA initiated a disabilities benefit program, and in 1965 the Medicare bill was signed into law by President Lyndon Johnson.
The SSA continued to grow in responsibility over the next several decades, which led to today’s system.
Which country has the best pension?
In Investopedia’s public pension system rankings, several European countries plus Australia scored the best.
The Netherlands leads the way with an “index score” of 81. The USA public pension system ranked 16th with a score of 60.6.
This middling pension ranking plus other constraining factors (like increasing life expectancy and aging populations) underscore the complexity of the “retirement age” equation.
Retirement age in the USA by Social Security benefits
Since you can start collecting benefits at the age of 62, many people choose to retire then.
However, the amount of your Social Security benefit varies depending on the age that you elect to start receiving it.
Your expected life expectancy is a major factor in your retirement age decision.
At what age will you get 100% of your Social Security benefits?
For anyone born after 1960, you can start receiving your full Social Security benefit at the age of 67.
If you are still working, you’ll need to consider the Social Security Administration’s income and benefits rules.
“In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2020, this limit on your earnings was $48,600.”
However, you can actually increase your Social Security benefit even more by delaying your benefits further — as late as age 70.
So, you’ll receive the largest possible annual benefit if you delay until age 70.
Can you collect Social Security at 62 and still work?
Yes. But your benefit will be reduced based on your income level.
The Social Security Administration explains:
“If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2020, that limit is $18,240.”
So in this scenario, if you’re planning to semi-retire, you can still receive the maximum benefit if your earned income is below $18,240.
Will Social Security run out?
The SSA projects that (if there are no changes) will not fully pay out benefits beginning in 2035. The SSA cites population aging (more people getting older) rather than increased life expectancy as the primary cause.
Around what age and year are you planning to retire? If it is after 2035 and Social Security benefits are part of your calculation, you may want to plan additional ways to fund your retirement.
We’ll talk about this in more detail below.
Retirement age in the USA by company pension benefits
If you have a pension through your employer, the details may vary.
Some pensions may allow early access to retirement benefits as early as age 55, while others may require waiting until age 65.
What if I don’t have a pension?
Many employees no longer have access to pensions as they’re becoming too large of a financial strain on many employers.
In that case, you’ll need to supplement your future Social Security income with other funds by investing.
The good news is, several other retirement plan options offer tax-advantaged contributions or growth.
Examples of tax-deferred (and usually tax-deductible) retirement account types
You won’t pay income taxes on your contributions
Examples of after-tax retirement account types
You won’t pay taxes on the investment growth
- Roth IRA
- Roth 401k
Many employers will help contribute to these plans instead of offering a pension.
While unrestricted access to most of these non-pension plans begins at age 59-½, there are actually several exceptions that can help you access your retirement accounts early, without penalty.
So, you can retire early at virtually any age you want — once you’re financially ready!
Retirement age in the USA by societal norms
Gallup polls have shown that the average retirement age in the USA has been increasing over the last few decades. The actual retirement age increased from 59 to 62 from 2002 to 2014.
Another Gallup study showed that those not yet retired saw an increase in expected retirement age in the USA from 60 in 1995 to 66 in 2018.
Other factors on retirement age
There are additional factors on your retirement age, too — your health, possible involuntary retirement, and managing your other financial priorities.
So even if you want to work until age 67 or 70 to receive a large Social Security benefit, that may not be possible.
Plus, some workers end up choosing to retire earlier if their pay, hours, or treatment from supervisors deteriorates.
Even if you plan to work during your mid- or late-60s, health conditions could require you to stop working earlier.
So, you may want to be flexible as you approach retirement age.
Recently, the COVID-19 pandemic has been causing older workers to face unplanned earlier retirement ages.
Whether it’s due to losing job skills, discrimination, or layoffs, many Americans lose their jobs unexpectedly later in their careers.
One survey done in early 2020 found that “more than half of workers will be forced out of the workforce earlier than expected and for reasons out of their control.”
In that study, 25% of respondents listed health issues as the reason for leaving work, while 34% said they experienced an unplanned job loss.
Other financial priorities that can affect your retirement age
Debt management and repayment can affect your ability to save and invest for retirement.
If possible, your best option is to avoid or minimize debt in the first place. You can choose to pay cash for vehicles or go to less expensive (or free) colleges.
If you can’t avoid the debt, refinance to a lower interest rate through consolidation and/or repay the debt aggressively to avoid paying large amounts in interest.
Paying for kid’s college
Children and general, and their college education specifically, can cause major financial expenses.
There are several more tax-efficient ways to pay for your kid’s college that you can consider.
Helping your kid to fund their college education is a noble desire, but consider if it’s financially feasible for you.
I don’t recommend funding your kid’s college if it means that you won’t be able to save enough for your own retirement.
If necessary, your child can pay for their college by working or with student loans, but you won’t have the same option to fund your retirement with loans.
Pursuing your other goals
You likely have other goals in addition to retiring. Spending time and money on the parts of life that you value most is a reasonable and worthwhile decision. But it can also delay your retirement age.
As with many parts of life, I’d recommend approaching this topic with moderation. Try to find a balance between enjoying life in the short term and preparing for retirement in the long term.
The “three-legged stool” — retirement age by your combined financial position
We’ve mentioned several major factors to consider: your current age, financial position, and your life expectancy. Don’t also forget to factor your expected retirement expenses into your planning.
These factors have to be balanced alongside your different income options to determine your target retirement age.
Financial planners like to refer to a “three-legged stool” as an analogy for this balancing act.
1. Social Security income
As discussed above, this is a benefit that the federal government provides based on your income and taxes paid during your working career.
If you plan to be retired after 2035, you may want to plan for the possibility of reduced Social Security benefits. It’s possible that new laws or policies could allow for full funding, but the “safe” approach is not to assume that full funding will be available.
Company pensions were more common in the 20th century, but many people still have them now (especially in certain industries).
If you don’t have a pension, don’t worry! You’re not truly skipping this second leg of the stool. Your other tax-advantaged retirement savings (outlined above) can fill this void — especially if your employer contributes or matches your contributions.
3. Personal savings
In addition to the first two legs, you should also plan to supplement your retirement with additional savings. I strongly recommend having an appropriate emergency fund and other cash reserves in place for retirement.
Personal savings can help you:
- Protect your investments if the market declines
- Pay for emergencies without going into debt
- Be flexible if your financial situation changes in the future
Under this third leg category, I would add two more items — income and other long-term care provisions.
Long-term care provisions
You may want to consider long-term care insurance as part of this third leg of the stool.
The population with long-term care policies in place has been decreasing, but it can be a helpful tool.
Without insurance, long-term care costs could eat through your savings unless you’re able to “self-insure” — pay cash in full for the cost of care.
You can and arguably plan for additional income during retirement (other than the traditional retirement funding).
You can generate a semi-retirement income from working or maintain investments that generate income for you.
More “passive” options here are real estate investments, business investments, or other non-tax-advantaged equities investments.
This is a helpful visual — the stool can’t stand without more than 1 leg, and it’s most secure when you have all 3.
Summary: retirement age in the USA
Clearly, there’s no single clear retirement age. There are several income sources, future expenses, and probabilities to consider.
Ultimately, I want to encourage you to let your own financial position dictate your decision.
You can get a more clear picture of your financial standing with the free semi-retirement workbook. You may also want to consider meeting with a fiduciary, fee-based financial planner to talk in detail and help choose a target retirement age.
Do you have other questions about your retirement age or funding? Comment below!