3 Ways Raising the Retirement Age Could Derail Your Financial Plan — and What To Do About It

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As it stands, the Social Security program is set to run out of funds by 2033. One measure that could help keep the program afloat would be to raise the retirement age from 66 or 67, depending on birth year, to 70.

While making this change could help maintain Social Security benefits, it will also change the way Americans need to plan for retirement. Here’s a look at how increasing the retirement age could derail your current retirement plan, and how to compensate for a possible increase in the age to receive full benefits.

Early Retirement Will Be Even More Costly

Currently, collecting Social Security early reduces your benefits, but the difference will be even more pronounced if the full retirement age is raised.

“If your full retirement age is 67, claiming Social Security at age 62 will result in a permanent 30% reduction in benefits. If the full retirement age were pushed to 70, claiming benefits at age 62 would lead to a permanent reduction that surpasses the current 30% mark,” said Phil Gibson, Ph.D., CFP, vice president and financial advisor at Wealth Enhancement Group.

You May Have To Work Longer Than You’re Actually Able

To ensure you have enough money to retire, you may need to work longer — but your physical or mental health may not allow for this.

“The prospect of an increased full retirement age for Social Security raises concerns about the feasibility of prolonged workforce participation, as remaining in the workforce is contingent on maintaining good health,” Gibson said. “Many individuals may find themselves caught in a precarious situation where they are neither healthy enough to continue working nor old enough to be eligible for full retirement benefits. So, one of the most important investments individuals can make today is to invest in their health to work longer if needed.”

Are You Retirement Ready?

You Could Be More Likely To Run Out of Savings

Your retirement savings will need to last an additional three years if the retirement age is raised and you’re no longer able to work.

“If the full retirement age for Social Security were to be raised to 70, individuals who choose to wait but cannot continue working would have to rely on their savings as their primary source of income for an extended period,” Gibson said. “However, this reliance on savings requires meticulous planning and execution. Without a well-thought-out withdrawal strategy, there is a risk of tax inefficiency and the possibility of depleting savings prematurely.”

How To Prepare

“It is important to prepare for potential risks that could derail your retirement strategy, and Social Security plays a critical role for most,” said Katherine Tierney, CFA, senior strategist, retirement at Edward Jones. “On average, Social Security replaces 35% to 40% of pre-retirement income if you claim at full retirement age. Generally, the lower your income, the greater your reliance on Social Security and the greater the impact an increase would have.”

Here are some ways to prepare for a potential increase in full retirement age.

Increase the Amount You’re Saving for Retirement

Saving more for retirement is never a bad idea.

“Even without an increase in the full retirement age, Social Security is likely to account for only a portion of your retirement income, and we believe investments will play a major role in making up the difference,” Tierney said. “If changes are made to Social Security and you don’t have enough retirement savings to cover the difference, you may need to delay retirement, work part-time in retirement or reduce your retirement spending.”

Are You Retirement Ready?

Consider Working in Retirement

“Working in retirement can have profound effects on financial security, so it’s no wonder 45% of Americans would consider working in retirement to improve their financial security, according to our research,” Tierney said. “Working retirees can earn more income and accumulate more retirement savings. They can often delay or reduce tapping into their retirement savings and delay initiating Social Security benefits, thus, potentially affording a longer and more financially secure retirement.”

Eliminate Debt Before Retiring

Wealth Enhancement Group’s Gibson recommends eliminating debt, especially non-mortgage debt, before entering retirement.

“Having debt in retirement reduces the amount of cash available to someone to maintain their lifestyle and increases the risk of spending down savings expeditiously,” he said.

Automate Retirement Savings

“The biggest hindrance towards accomplishing our goals is actually human behavior. One way to overcome the challenges of human behavior is to automate your finances as much as possible so that you aren’t relying on willpower alone,” said Kendall Meade, financial planner at SoFi.

“When we have our retirement contributions come directly out of our paycheck, or even come out of our savings account as soon as we get paid, we never see this money in our account,” she continued. “This makes it out of sight out of mind and can keep us from spending it.”

If You Are Near Retirement, Look for Ways To Decrease Expenses

“If you are close to retirement but feel that you do not have enough saved up then you may want to focus on decreasing your expenses,” Meade said.

Are You Retirement Ready?

Some ways to do this include downsizing your home, selling a vehicle if you have multiple in your household and taking advantage of senior discounts.

Consult With a Financial Professional

“If you’re concerned about the impact of an increased retirement age, consider reviewing your situation with a financial advisor,” Edward Jones’s Tierney said. “A financial advisor can run different scenarios for your Social Security benefits to help you better understand the impact on your specific situation and develop a strategy to meet your unique needs.”

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