To Wait Or Not To Wait
Consider taking benefits earlier if . . .
- You are no longer working and can’t make ends meet without your benefits.
- You are in poor health and don’t expect the surviving member of the household to make it to average life expectancy.
- You are the lower-earning spouse, and your higher-earning spouse can wait to file for a higher benefit.
Consider waiting to take benefits if . . .
- You are still working and make enough to impact the taxability of your benefits.
- Either you or your spouse are in good health and expect to exceed average life expectancy.
- You are the higher-earning spouse and want to be sure your surviving spouse receives the highest possible benefit.
What Is The Future Of Social Security
As of June 2022, the Social Security Trust Fund is projected to have enough resources to cover all promised benefits until 2035 when, absent a change from Congress, benefits would need to be cut for all current and future beneficiaries to about 80% of scheduled benefits.2 Over the longer term, changes to the full retirement age or means testingâwhich could reduce or eliminate benefits based on your other income sourcesâmay also be considered.
If you’re skeptical about the future of Social Security or wary of potential changes, you may be tempted to start benefits early, assuming that it’s better to have something than nothing. Regardless of your situation, if you are concerned about the future prospects for Social Security, then that’s a good reason to save moreâand earlierâfor your retirement.
Is Social Security Based On Last 3 Years Of Work
While it’s true that the last 3 years you work may affect your Social Security benefit amount when you claim, those years alone are not what determine your benefit dollar amount. Rather, your benefit is determined using a formula, which includes the highest earning 35 years of your lifetime working career.
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Reason #: Retire Early If You Want To Stay Healthier Longer
Theres no doubt that working and being active can help you stay healthy much longer than sitting with your feet up. But not all work is good for you sometimes its detrimental to your health.
Retiring at 62 from a backbreaking job or one with a disproportionately high level of stress can help you retain, or regain, your good health and keep it longer.
Just be sure to have a plan for being mentally, socially and physically active. Jobs are good for keeping you engaged, but not the only way.
How Much Can I Earn If I Retire At 62 In 2020
In 2020, the yearly limit is $18,240. During the year in which you reach full retirement age, the SSA will deduct $1 for every $3 you earn above the annual limit. For 2020, the limit is $48,600. The good news is only the earnings before the month in which you reach your full retirement age will be counted.
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Cost Of Living Adjustment
The third reason why it is so beneficial for FERS to wait until 62 to retire has to do with when a retirees pension is going to begin to rise. Most employees are familiar with whats called a COLA, or a Cost of Living Adjustment in retirement. For regular FERS retirees, COLAs begin at age 62. For regular CSRS retirees and FERS special provision retirees , COLAs begin right way regardless of retirement age.
Each year, the Bureau of Labor Statistics releases a number called the Consumer Price Index for Wage Earners, or the CPI-W for short. The CPI-W is based on a number of economic factors essentially, measuring how much more expensive things are today compared to last year.
If a retiree is eligible to receive a COLA in a given year, the COLA happens automatically. We say COLAs happen automatically because this increase does not have to pass through Congress, and it does not pass the Presidents desk, like a pay raise would. The CPI-W number is released in October and that increase simply goes into effect the following January but only for those eligible to receive it.
Getting COLAs applied to your pension right from the very beginning can make a significant difference in the long run. Unfortunately, sometimes employees are so eager to retire, that they may not even realize how important those incremental increases are until the damage is already done.
What Do You Do For Health Insurance If You Retire Before 65
If you retire before youre 65 and lose your job-based health plan when you do, you can use the Health Insurance Marketplace® to buy a plan. Losing health coverage qualifies you for a Special Enrollment Period. This means you can enroll in a health plan even if its outside the annual Open Enrollment Period.
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Investing For Retirement At 62
The longer you have until retirement, the more time you have to invest and grow your money through the power of compounding interest. If youre planning to retire at 62, adjusting your strategy to be aggressive might be necessary since you:
Have less time save
Need the money that you do save to last longer
How To Retire Comfortably At 62
The key to retiring at 62 is to assess your current assets, estimate future income and preferred lifestyle, including whether youre willing to work part-time, and how youll pay for healthcare until Medicare kicks in. While 65 is the traditional age to retire and start getting Social Security payments, many Americans want retire earlier, if possible. A financial advisor can help you put a financial plan together for retirement, regardless of what age you want to do it by.
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Reasons You Should Claim Social Security Early
10 Reasons You Should Claim Social Security Early
Your retirement planning likely includes getting income from the Social Security Administration, but when you start collecting Social Security benefits can have a big impact on your planning. The earliest you can collect is age 62, but youll get more money if you delay your benefits past your initial Social Security eligibility. If you wait until after your full retirement age to start collecting Social Security you can earn delayed retirement credits, which will increase your benefits even more.
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You might think that waiting for bigger benefits is better, but thats not always the case. There is no definitive answer to when you should collect Social Security benefits and taking them as soon as you hit the early retirement age of 62 might be the best financial move. Learn why you might want to start taking Social Security at 62.
Alliance America Can Help
Alliance America is an insurance and financial services company. Our financial planners and retirement income certified professionals can assist you in maximizing your retirement resources and help you to achieve your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling 219-6884 today.
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What If I Delay Taking My Benefits
If you retire sometime between your full retirement age and age 70, you typically earn a “delayed retirement” credit for your own benefits . For example, say you were born in 1960, and your full retirement age is 67. If you start your benefits at age 69, you would receive a credit of 8% per year multiplied by two . This means your benefit would be 16% higher than the amount you would have received at age 67.
How Much Can You Earn If You Retire At 62 In 2021
This limit changes from year to year to account for inflation. This year, the limit is $142,800 per year, but in 2022, it will increase to $147,000 per year. If your goal is to collect the maximum $2,364 per month at age 62, you’ll need to be reaching these limits consistently throughout your career.
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Annuities With Enhanced Death Benefits
Finally, consider an annuity with an enhanced death benefit rider. This rider provides a death benefit more significant than the account value of the annuity. In most cases, the death benefit will cover most of the tax burden to your beneficiaries.
For example, one deferred annuity currently offers a 30% bonus on the annuitys total value at the time of your death, which will pay most, if not all, of your beneficiarys taxes.
Safely Investing Your Retirement Savings
Now that weve put a plan in place to replace your pre-retirement income, the next step is to plan for additional funds used for investing.
Our rule of thumb is if you cant afford to lose money, you shouldnt be in a position to lose money. This is where fixed index annuities come into play.
Fixed index annuities provide the potential to earn interest based on the performance of an underlying market index , but with a 0% floor, which means your account can never go down, no matter how low the market goes.
With a fixed index annuity, you can earn interest while your money is safely invested and not subject to market volatility.
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The Downside Of Claiming Early: Reduced Benefits
Consider the following hypothetical example. Colleen is 62 as of 2022. If Colleen waits until age 67 to collect, she will receive approximately $2,000 a month. However, if she begins taking benefits at age 62, sheâll receive only $1,400 a month. This âearly retirementâ penalty is permanent and results in her receiving up to 30% less year after year.
However, if Colleen waits until age 70, her monthly benefits will increase another 24% over what she would receive at her FRA, to a total of $2,480 per month.1 If she were to live to age 89, her lifetime benefits would be about $112,000 more, or at least 24% greater, because she waited until age 70 to collect Social Security benefits.2
Tempted To Retire At 62 Heres Why It Pays To Wait
According to the rules of the Social Security Administration, you are allowed to retire and claim benefits at the age of 62. But as you probably already know, just because you may do something doesnât necessarily mean you should do it.
Your 62nd birthday has just arrived, and with it came an overwhelming temptation to retire. All you can think about is how wonderful it would feel to cast off the burden of your job and live the remainder of your life unencumbered.
Itâs a fact that you may start claiming Social Security benefits at the age of 62, but you will not receive 100% of your monthly benefit if you do. You must wait until your full retirement age to get that. And if you can afford to wait a bit longer, you can get even more. Check this out:
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How To Retire At 62 Comfortably
If you want to retire at 62, you must have a plan. Like anything else, if you want to achieve something, you need to have a plan and put that plan into action. The first step is figuring out how much money youll need to save to live comfortably.
This can be difficult to answer because everyones definition of comfortable differs. However, a good rule of thumb is to have at least enough saved to cover your basic living expenses for at least five years. This will ensure you have a cushion in case anything unexpected arises.
Once you know how much money youll need to save, you can start working on a retirement plan. There are a few different options when it comes to retirement plans, but the three most popular are 401s, IRAs, and annuities.
You Can Tap Your Retirement Savings Without Penalty
Any money you have socked away in an IRA or 401 plan is yours to access penalty-free beginning at age 59 1/2. And so if you’re turning 62 this year, you can take withdrawals from your savings without restriction.
That said, you’ll need the money in your IRA or 401 to last for your entire retirement. And so if you’re still working, or if you have other income sources available to you, it could pay to avoid tapping your savings a bit longer.
Say you have a $500,000 nest egg that’s currently earning an average annual 5% return . If you were to leave your savings untouched for even two more years, you’d grow your balance to $551,000. That’s actually a pretty substantial difference.
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Effect Of Delaying Retirement Benefits
1Represents Full Retirement Age based on DOB January 2, 1960
2PIA = The primary insurance amount is the basis for benefits that are paid to an individual
That higher baseline would last for the rest of your retirement and serve as the basis for future increases linked to inflation. While it’s important to consider your personal circumstancesâit’s not always possible to wait, particularly if you are in poor health or can’t afford to delayâthe benefits of waiting can be significant.
Be aware that if you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstances your Medicare coverage may be delayed and cost more if you don’t sign up at age 65. If you start Social Security benefits early, you’ll automatically be enrolled into Medicare Parts A and B when you turn age 65.
Your annual Social Security statement will list your projected benefits between age 62 to 70, assuming you continue to work and earn about the same amount through those ages. If you need a copy of your annual statement, you can request one or view it online on the Social Security Administration portal.
How Do You Qualify For Medicare Early If You Have A Disability
If you have a disability, you may be eligible for Medicare if youâre younger than 65 and:
- You have been collecting Social Security disability benefits for at least 24 months. In this case, youâll likely be automatically signed up for Medicare coverage starting in month 25.
- You have end-stage renal disease . You wonât be automatically signed up for Medicare, though. Youâll still need to contact Social Security or visit their website to enroll.
- You have amyotrophic lateral sclerosis , also known as Lou Gehrigâs disease. If you have ALS, youâll be automatically signed up for Medicare the same month your Social Security disability benefits start.
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Benefit Reduction For Early Retirement
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We sometimes call a retired worker the primary beneficiary, because it is upon his/her primary insurance amount that all dependent and survivor benefits are based. If the primary begins to receive benefits at his/her normal retirement age, the primary will receive 100 percent of the primary insurance amount. If the spouse of a primary begins to receive benefits at his/her normal retirement age, the spouse will receive 50 percent of the primary’s primary insurance amount. The table below illustrates the effect of early retirement, for both a retired worker and his/her spouse. For our illustration, we have used a $1,000 primary insurance amount. With this primary insurance amount and both primary and spouse retiring at their respective normal retirement ages, the primary would receive $1,000 per month and his/her spouse would receive $500 per month. The table shows that retirement at age 62 results in substantial reductions in monthly benefits. Please note that relatively few people can begin receiving a benefit at exact age 62 because a person must be 62 throughout the first month of retirement. Thus most early retirees begin at age 62 and 1 month. Primary and spousal benefits at age 62 |
|
| Year of | |
|---|---|
| 35.00% |
But Wont He Collect A Higher Total From Social Security By Getting A Head Start At 62
Well, maybe. It all depends on how long he lives. Look at the next table:
| Age at Death | Amount accumulated if retired at age 62 | Amount accumulated if retired at age 67 | Amount accumulated if retired at age 70 |
|---|---|---|---|
| Age at Death67 | Amount accumulated if retired at age 62$87,000 | Amount accumulated if retired at age 67$0 | Amount accumulated if retired at age 70$0 |
| Age at Death70 | Amount accumulated if retired at age 62$139,000 | Amount accumulated if retired at age 67$72,000 | Amount accumulated if retired at age 70$0 |
| Age at Death80 | Amount accumulated if retired at age 62$313,200 | Amount accumulated if retired at age 67$312,000 | Amount accumulated if retired at age 70$307,200 |
| Age at Death85 | Amount accumulated if retired at age 62$400,200 | Amount accumulated if retired at age 67$432,000 | Amount accumulated if retired at age 70$460,800 |
These cumulative figures do not include any increases to the monthly benefits for inflation or the effects of income taxes. More importantly, they donât show the impact that retiring at 62 could have on Billâs retirement savings.
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What Is The Early Retirement Penalty
If you claim Social Security retirement benefits before your full retirement age, which is 67 for those born in 1960 or later, the SSA will permanently lower your benefits. Social Security does this to try to make the amount you receive over your life expectancy equal whether you claim at age 62 and get a reduced amount, 67 and get the standard amount, or 70 and get an increased amount.
The SSA will reduce your benefits by 5/9 of one percent per month for each month you receive benefits before your normal retirement age. This reduction is roughly equal to roughly .556% per month. For example, if you start claiming benefits 27 months before you turn 67, your monthly benefit will be reduced by 15% . The reduction is permanent.
If you claim retirement benefits more than 36 months early, the per-month reduction is not quite as harsh. The SSA has a different calculation for the months over 36. For example, if you start claiming benefits 60 months before you turn 67, your benefit will be reduced by 30% . The earliest you can claim retirement benefits is 60 months before your retirement age.
To learn more about collecting Social Security benefits, you may want to consider reading Nolo’s book, Social Security, Medicare, & Government Pensions: Get the Most Out of Your Retirement & Medical Benefits.