What Are Some Key Ages In Your Retirement Timeline
Once you have a rough draft of the first two pieces of your retirement blueprint, you and your advisor can start refining your retirement timeline. And at this point in the process, age can be an important factor. For instance:
- 59 Â½ A good place to start thinking about early retirement goals, because you wonât be penalized for making withdrawals from retirement accounts.
- 62 Youâre eligible for Social Security. Of course, the longer you wait to take Social Security, the larger your eventual benefit will be. But some folks need these benefits to meet an early retirement goal or to navigate an unexpected early retirement.
- 65 This is when you become eligible for Medicare. If you retire before 65 and you canât jump on a working spouseâs plan, youâll need to purchase health care from your stateâs exchange or pay for COBRA to cover a short-term gap.
- 67 Full retirement age for anyone born in 1960 or later, which is when you can receive your full Social Security benefits.
- 70 Keep working past 67 and donât take Social Security, and your benefits will continue to grow until age 70.
- 72 The age at which you have to start taking annual required minimum distributions from your retirement accounts.
Planning for your best retirement.
Picking the best time to retire is a decision thatâs as personal as it is financial. Our comprehensive planning process at Keen Wealth will help you keep both in sync. Call us up and lets start working on your ideal retirement timeline.
Should You Collect Social Security Early
As you can see from the table above, if you wait and collect Social Security at age 66 in 2022, you will get 100% of the benefits you are eligible for.
However, if you start collecting at the earliest age of 62, your benefits will be permanently reduced between 20-25% depending on when you were born.
Also, if you wait until 67, youll get 108 percent of the monthly benefit because you delayed getting benefits for 12 months.
Additionally, if you wait until age 70, youll get 132 percent of the monthly benefit because you delayed getting benefits for 48 months.
An Example Of Taxed Benefits
Lets say you receive the maximum Social Security benefit for a worker retiring at FRA in 2021: $3,148 per month. Your spouse receives half as much, or $1,574 a month. Together, you receive $4,722 a month, or $56,664 per year. Half of that, or $28,332, counts toward your combined income for determining whether you have to pay tax on part of your Social Security benefits. Lets further assume that you dont have any nontaxable interest, wages, or other income except for your traditional individual retirement accounts required minimum distribution of $10,000 for the year.
Your combined income would be $38,332half of your Social Security income, plus your IRA distributionwhich would make up to 50% of your Social Security benefits taxable because youve exceeded the $32,000 threshold. Now, you may be thinking, 50% of $56,664 is $28,332, and Im in the 12% tax bracket, so the tax on my Social Security benefits will be $3,399.84.
Fortunately, the calculation takes other factors into account, and your tax would be a mere $225. You can read all about the taxation of Social Security benefits in Internal Revenue Service Publication 915.
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What To Consider When Deciding The Best Age For Social Security Benefits
Youll receive reduced monthly benefits permanently if you start taking them before you reach full retirement age. And the reductions arent small. This breakdown summarizes how much you can lose depending on when you get your retirement benefits:
- Benefits are reduced by 30% if you opt to start receiving benefits just five years early.
- If you wait until you full retirement age youll receive 100% of your benefits.
- You can also elect to postpone benefits beyond full retirement age, up until you are 70.
- The monthly amount you will receive in the future increases each month you wait to start receiving benefits.
- If you can wait until the last possible month, your check will be 132% of the full retirement benefit.
For a fuller comparison, this table from the Social Security Administration shows how much you could get if you retire at age 62 based on your birth year:
|Social Security Administration Early Retirement at Age 62
So, its almost always best to delay Social Security benefits for as long as you can. If you plan to work in retirement, youll definitely want to delay. Youll face a penalty if you continue to work after you claim early retirement benefits and earn more than the yearly earnings limit, which for the 2021 tax year is $18,960. This means that the Social Security Administration will deduct $1 from benefits for every $2 that you earned over $18,960. For the 2022 tax year, the yearly earnings limit is $19,560.
What Else Affects Your Retirement Benefits
Everyones retirement is unique. Beyond deciding when to begin receiving retirement benefits, other factors that can affect your benefits include whether you continue to work, what type of job you had, and if you have a pension from certain jobs.
Continuing To Work
You can choose to keep working beyond your full retirement age. If you do, you can increase your future Social Security benefits. Each extra year you work adds another year of earnings to your Social Security record. Higher lifetime earnings can mean higher benefits when you choose to receive benefits.
Specific Types Of Earnings
While Social Security earnings are calculated the same way for most American workers, there are some types of earnings that have additional rules.
Earning types with special rules include:
Pensions And Other Factors
Pensions and taxes have the potential to impact your retirement benefit. Review the resources below on pensions and other factors you should consider:
- Windfall Elimination Provision : If you have a pension from a job for which you didnt pay Social Security taxes, this policy may lower your retirement benefits.
- Government Pension Offset : This policy affects benefits as a spouse, widow, or widower if you have a pension from a government job for which you didnt pay Social Security taxes.
- Income Taxes And Your Social Security Benefits: You might have to pay federal income taxes on your Social Security benefits in certain situations.
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What Is Full Retirement Age
The size of your monthly Social Security benefit depends on a few factors, including how much you earned over the years, the year you were born, and the age when you start claimingdown to the month.
Youll receive your full monthly benefit if you start claiming when you reach what Social Security considers your full retirement age , sometimes also referred to as normal retirement age. FRA was 65 when Social Security began, but it has been raised to 67 for anyone born in 1960 or later. To find your FRA, see the chart below.
|Finding Your Full Retirement Age
Why Retiring At 62 Is A Good Idea
Probably the biggest indicator that it’s really ok to retire early is that your debts are paid off, or they’re very close to it. Debt-free living, financial freedom, or whichever way you choose to refer it, means you’ve fulfilled all or most of your obligations, and you’ll be under much less strain in the years ahead.
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Does Spouses Income Affect Social Security Benefits
The Social Security Administration considers the act of drawing benefits as retirement. This means that recipients are restricted as to how much additional income they can earn while drawing benefits before reaching FRA. But if youre married, does your spouses income apply to this limited income?
Notify Social Security About Your Return To Work
If you plan to return to work, you should notify the Social Security Administration right away, Elsasser advised. That way, the agency can start to reduce your checks now.
If you don’t, you could be in for an unwelcome surprise early the next year when the IRS reports your earnings to the Social Security Administration.
If that happens, you may get an unexpected letter from the Social Security Administration notifying you that they are stopping your benefit right away until any earnings penalty from the prior year is made up.
That may disrupt your cash flow if you’re not expecting it.
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You Want To Start A Business
Some people think of retirement as a time to relax, but you might see it as an opportunity to do things you couldn’t do before, such as starting your own business. For example, you might have put off starting a business before because you were afraid you wouldn’t be generating enough income. Social Security benefits could provide enough income to let you launch your business. And if your business is successful, the income it generates could be more than enough to offset the future reduction in benefits.
You Cant Work Anymore
Even the best retirement financial plans and projections can go awry. For example, you might have planned on working until youre 70 so you could maximize your retirement benefits. If you get laid off at 62, however, and have difficulty finding another job, you might need to start taking your benefits just to get by.
Additionally, continuing to work in your industry simply might not be possible or healthy for you later in life. If your job requires manual labor, you might decide the risk of injury or other damage to your health isnt worth continuing to work. In this case, the healthier lifestyle youll get by retiring early could outweigh the smaller monthly Social Security benefit.
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You Expect Your Investments To Grow Faster Than The Increased Benefit
If you’re the next Warren Buffet, it’s possible you could do better taking Social Security early and investing the money than you could by waiting to take a larger benefit later. When weighing the best decision, consider the inflation rate, the rate your benefits increase and how much you can expect to earn in your portfolio. Given that benefits increase by 8% per year for each year you wait after full retirement age, however, it’s hard to outperform that rate of increase in the market. These safe investments do have high returns.
Claiming Social Security At Age 65
Those whose Full Retirement Age is 65 are already that age or older. For those born after 1955 and before 1960, Full Retirement Age is 66 and some months. By retiring at age 65, those beneficiaries lose at least 12 months worth of increases. For those born in 1960 or after, Full Retirement Age is 67, so they lose up to 24 months of increases if they retire at age 65.
Below, we show how a person born in 1960 and entitled to a full benefit of $2,500 could see his or her monthly benefit change based on claiming age:
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Waiting Til Age 70 Yields The Highest Benefit But Only Big Earners Get The Max
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The maximum Social Security retirement benefit that you can receive depends on the age when you begin collecting and your earnings history, among other factors. In 2022, the maximum is $3,345 per month for someone who files at full retirement age at age 66. But $4,194 is the absolute highest benefit for those who qualify and delay claiming until age 70.
Tips For Ensuring A Comfortable Retirement
- If you want to build a retirement plan, a financial advisor can help you reach your retirement goals. Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
- Save, save, save. To be able to put off taking Social Security benefits until youre 70, youll need to have enough stashed away to live off of until then. Our retirement calculator can help you figure out how much youll need to save to retire comfortably.
- Start saving early, and take advantage of employer matches. With our 401 calculator, you can see how much your 401 will be worth when you reach retirement.
- Think hard about where you want to retire. Not all states are equally tax-friendly to retirees. Use our retirement tax-friendliness tool to see how tax-friendly your home state is, and whether Social Security benefits are taxable at the state level there.
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Is Social Security Based On The Last 5 Years Of Work
A: Your Social Security payment is based on your best 35 years of work. And, whether we like it or not, if you don’t have 35 years of work, the Social Security Administration still uses 35 years and posts zeros for the missing years, says Andy Landis, author of Social Security: The Inside Story, 2016 Edition.
Collecting Social Security Before Or After Your Full Retirement Age
If you begin collecting Social Security at age 62 and your full retirement age is 66, the check you receive will be about one-quarter less than the amount you would have received at full retirement age. If you are the sole breadwinner in your household, your spouse could be negatively affected as well. If you begin collecting before your full retirement age, the amount of money your spouse would receive after your death decreases.
Full Retirement Age Depends On Birth Year
Social Securitys full retirement age depends on what year you were born. For instance, if you were born between 1943 and 1954, your FRA is 66. But if you were born in 1960 or later, your FRA would be 67. But you can start receiving Social Security at 62 at a reduced rate. There is a restriction to retiring early.
Claiming Social Security At Age 62
At age 62, the earliest point at which most people can claim benefits, youll receive around 70 percent of the amount that you would receive at your Full Retirement Age. If you were born in 1958, and your full benefit at retirement would be $1,000 a month, you would shrink your benefit to around $700 a month by retiring at age 62. Under most circumstances, once you claim your benefit, it stays at that amount for the rest of your life. Consequently, by retiring early you could lose out on $300 a month every month for the rest of your life.
After you turn 62, the amount of your Social Security benefit rises by about a half a percentage point each month. So, at age 63 you would receive about 77 percent of your benefit
If you work after claiming your benefit, one of two things can happen:
- If you earn less than the earnings limit, which for 2020 is $18,240, then your benefits will not be affected.
- If you earn more than the earnings limit, Social Security will deduct $1 for each $2 you earn over the limit. Social Security will, after full retirement, adjust your benefit to reflect this deduction so the money will eventually be restored to you.
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What Is Full Retirement Age Anyway
Full retirement age isnt some mandatory age at which you must retire or claim Social Security benefits. Rather, its the age at which you will receive your full retirement benefit, as calculated by the Social Security Administration. From 1943 to 1954, full retirement age was 66, but as the American population has aged, the SSA has steadily increased it to its current level of 67 for those born in 1960 or later. For those born between 1955 and 1960, full retirement age was increased by two months per year, to 66 years and 2 months for those born in 1955, 66 years and 4 months for those born in 1956 and so on.
What Is The Best Age To Retire For Longevity
Retirement Sage Sharing Insights Into Achieving a Great Retirement
While everyone has a tendency to focus on money, often overlooked is living a long and happy life. They say you cant take it with you, so whats the secret for a rich and fulfilling retirement?
As a general rule, early retirement leads to a longer and happier life. The optimal age is your mid 50s, when youre still young and healthy enough to enjoy everything. The only caveat is ensuring sufficient savings to support your desired lifestyle.
Our most precious asset is time, something which most of us take for granted. A stark reminder was the passing of a good friend and work colleague. He loved his job and prided himself on over forty years of service.
Unfortunately, his age made him a corporate liability. I know he felt deeply hurt and betrayed the day they terminated his employment. Much to his surprise, retirement wasnt so bad. Sadly, it only lasted two years!
We all know someone who was robbed of what should have been their golden years. Time is precious and each of us has a best before date.
This is why the best age to retire for longevity is when youre still young and healthy enough to fully enjoy it.
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