Bridge the Social Security Gap

As Americans live longer and the population continues to age, the conversation around raising the Social Security retirement age is gaining urgency. Social Security remains a vital source of retirement income for millions, but the program faces ongoing financial pressures. One proposed solution is to increase the retirement age to help ensure Social Security’s long-term sustainability.

But what if you’re ready to retire before qualifying for full Social Security benefits? Financial solutions like annuities and cash value life insurance can help close that gap and support your retirement goals.

This article explains why the government is considering increasing the Social Security retirement age, how it may affect your retirement strategy, and how to prepare with reliable income sources.

Birth Year	Current FRA	Potential New FRA
1955–1959	66–67	No Change
1960–1972	67	68–70 (proposed)
1973 or later	67	70+ (proposed)

Who’s Impacted Most? Workers born after 1960 could see their full retirement age gradually increase from 67 to as high as 70, depending on future legislation.

Why Social Security Retirement Age Is Changing

How Social Security’s Origins Impact Today’s Retirement Age

When Social Security launched in 1935, the full retirement age (FRA) was 65. At that time, life expectancy was much lower, so most retirees didn’t collect benefits for decades. As Americans began living longer, the strain on the system increased. In response, Congress passed amendments in 1983 that gradually raised the FRA to 67 for individuals born in 1960 or later.

Why the System Faces Financial Strain

The Social Security Administration estimates its trust fund will be depleted by the mid-2030s if no changes are made. As the baby boomer generation retires, there are fewer workers paying into the system per retiree. Combined with longer lifespans, this shift means the program’s expenses are expected to outpace revenue unless corrective action is taken.

What Retirement Age Reform Could Look Like

Many lawmakers support gradually increasing the FRA from 67 to 69 or even 70 for future retirees. Supporters argue that with longer lifespans and extended careers, it’s reasonable to work a few more years before collecting full benefits. However, critics point out that this approach may disproportionately affect lower-income workers, who tend to have shorter life expectancies than their higher-income counterparts.

What Rising Retirement Ages Mean for You

If the FRA is raised to 69 or 70, you’ll likely need to adjust your retirement plans. Key impacts include:

1. Reduced Early Benefits: You can still begin claiming benefits at age 62, but the reductions will be steeper. For example, if FRA rises to 70, retiring at 62 could result in a 40% cut in monthly benefits.
2. Longer Working Years: A later FRA means more years in the workforce to qualify for full benefits. This can be especially difficult for those in physically demanding jobs or with health concerns.
3. Wider Financial Gaps: Retiring before the new FRA creates a longer gap between the end of your career and the start of full Social Security benefits. This increases the need for supplemental income sources.

Most solutions for bridging the Social Security gap, such as annuities and cash value life insurance, are typically funded with non-qualified (after-tax) assets. Using IRA or 401(k) funds for these strategies requires special IRS rules—consult a qualified advisor for details.

Strategies to Fill the Retirement Income Gap

If you’re planning to retire early, how can you fill the income gap until Social Security begins? Annuities and life insurance with cash value offer flexible tools to help fund your retirement on your own timeline.

Annuities: Guaranteed Income for Life

An annuity is a contract with an insurance company that guarantees regular income payments, often for life. You fund it either all at once or over time, and the income can begin immediately or at a future date.

• Deferred Annuities: Ideal if you’re still working but plan to retire early. You contribute now and receive regular payments starting at a future date—helping bridge the income gap before Social Security kicks in. Learn more about Social Security benefits.
• Immediate Annuities: Provide income right away, often used by retirees who stop working at 62 but won’t receive full Social Security benefits until several years later. Explore immediate annuities.
• Longevity Annuities: Begin paying out later in life, such as age 80 or 85. This helps cover expenses in your later retirement years, reducing the need to draw heavily from early savings.

Fixed Index Annuities (FIAs) are a popular choice for bridging the gap. They offer guaranteed lifetime income, growth potential linked to a market index, and principal protection—with no exposure to market loss. For many early retirees, FIAs deliver peace of mind and income stability until Social Security begins.

Annuities can offer predictable, guaranteed income—helping reduce the risk of outliving your savings, especially if you retire early.

Leveraging Life Insurance for Income Flexibility

Permanent life insurance, such as whole or universal life, provides both a death benefit and an opportunity to build cash value over time.

• Cash Value as a Retirement Resource: You can access the policy’s accumulated cash value through tax-free loans or withdrawals. This makes it a useful income source before full Social Security eligibility. Learn more about permanent life insurance.
• Supplementing Retirement Income: Use the cash value strategically to help cover expenses, delay Social Security, or manage healthcare costs—without triggering taxable income, as long as withdrawals stay within your policy’s value.
• Tax Benefits: Withdrawals or policy loans from permanent life insurance are generally tax-free, unlike Social Security, which becomes taxable above certain income thresholds.

Evaluating Annuities and Life Insurance Options

Sample Timeline for Bridging Your Income Gap

• Stop working before full Social Security eligibility
• Begin annuity or cash value withdrawals to cover expenses
• Delay Social Security to maximize your monthly benefit
• Transition to full benefits at your new FRA

Pros:

• Guaranteed Income: Annuities offer reliable, consistent income for budgeting and stability.
  Example: Linda, age 62, retires early and uses a fixed index annuity to cover her expenses for five years until full Social Security—avoiding a permanent benefit reduction.
• Flexibility: Life insurance with cash value allows you to tap into funds when needed, offering control over retirement cash flow.
  Example: David uses his policy’s cash value to pay for medical bills before age 65, preserving his investment accounts for later years.
• Tax Advantages: These tools offer tax-deferred or tax-free income, which can reduce your overall tax burden in retirement.
  Example: Sandra supplements her income with tax-free policy loans, keeping her taxable income below Medicare IRMAA thresholds.

Cons:

• Cost: Life insurance premiums can be high, especially for older applicants or those seeking larger policies.
  Example: Greg applies for a new policy at age 60 and finds premiums much higher than expected.
• Liquidity: Some products carry surrender charges or penalties for early access, which can reduce flexibility.
  Example: Sharon faces a 7% surrender charge when taking funds from her annuity in the first three years.
• Complexity: These solutions require careful review and planning. It’s important to understand all terms and fees before committing.
  Example: John nearly misses a policy loan interest charge, which could have reduced his long-term benefits.

How long does it take? Setting up an annuity or permanent life insurance contract, and transferring funds, can take several weeks. Start planning early to avoid income gaps between retiring and the start of your Social Security benefits.

Final Thoughts on Preparing for Retirement Age Changes

As policymakers debate raising the Social Security retirement age, now is the time to prepare. If your goal is to retire before reaching the new FRA, options like annuities and cash value life insurance can help you bridge the income gap and preserve your preferred lifestyle.