You love everything about being gainfully employed. But you’re getting close to retirement. What do you do? Should you wait until you’re 70? Retire at 62? Or continue working, but fewer hours, or maybe, in a different, less-demanding position?
In this article, we will explore some of your choices. We will take a look at some of the available options that may fit your circumstances and lifestyle, while also considering the condition of your health during your later working years.
No matter your age, if you’re considering retirement or just a change in lifestyle, check out “Is it Time to Reimagine Your Life?” for a perspective you may not have considered.
Retiring at 62 (or younger) has an obvious allure. You no longer have to report to work. You’re no longer obligated to the confinements, time restrictions, and deadlines of a job.
What are the benefits of retiring at or before 62?
You’re generally healthier, and you may have more energy to pursue your retirement dreams. You can participate in exercise classes to keep your health on the up and up. You won’t be stuck behind a desk or in some sedentary position for large portions of your day. Suddenly, your weekdays are also open for scheduling. You may also decide to work part time.
Retiring at 62 gives you the obvious benefit of more free time. If you retire at 65 (or later), you’ll have at least three fewer years of free time to spend with grandchildren, traveling, or pursuing other activities.
The Social Security Administration mandates that the earliest you can start collecting benefits is 62. Once you start receiving benefits, the amount remains fixed. Early retirees (62) get 73.3% of their monthly full retirement allowance.
Those collecting benefits at 62 would collect benefits for longer – 52 additional months, but while retiring at 62 may sound enticing, you’re not eligible for Medicare until you’re 65. So, you’ll be in good shape if you have health insurance. But if not, you’ll need to fill that financial gap with reliable coverage.
Full retirement age – when you receive 100% of your benefits – varies depending on your birth year. Americans born in 1960 and later get full-retirement-age benefits at 67.
If you were to max out FICA contributions and retire at 62 in 2019, you could expect $2,074 in Social Security.*
Can you afford to retire before you reach your full retirement age? How much money will you need to retire? Will you need $1.5 million to do it comfortably? Set numbers can be a bit misleading. A better formula might be to multiply your pre-retirement income by 70-80%. If your investments can generate that amount, go for the gold. If not, you may want to consider other options.
For example, you would need a portfolio value of approximately $4.6 million, split equally between qualified and nonqualified assets to generate $10,000 per month for living expenses, which would include a Social Security benefit of $2,074/month.**
For an interesting look at 5 different retirement styles, visit “Thinking Differently About Retirement.”
Going for the Big 67
The average retirement age in the United States is 63, but waiting until you reach full retirement age means you’ll receive Medicare benefits and 100% of your Social Security benefits. Your full retirement age is 66 if you were born between 1943 and 1954. Full retirement age increases by two months every year for birthdays between 1955 and 1960.
Retiring at your full retirement age (rather than waiting until you’re 70) provides you with nearly the same health advantages as retiring young. Your health is reasonably good, and you can generally expect to live another two decades.
People who retire in their 60s are also allowed, but are not required, to tap into their 401(k) plans and Individual Retirement Accounts. The penalties for early withdrawals no longer apply after age 59½. Retirees, however, must take retirement account distributions after 70½. Many retirees with larger retirement accounts delay making withdrawals (or keep withdrawals at a minimum) to allow their accounts continued growth potential.
If you were to max out FICA contributions and retire at 66 in 2019, you could expect $2,861 in Social Security.* As an example, you would need a portfolio value of approximately $4.0 million, split equally between qualified and nonqualified assets to generate $10,000 per month for living expenses, which would include a Social Security benefit of $2,861/month.**
Finances aside, there are some people who just love their career so much, they can’t stand the thought of leaving. For thoughts on how to keep working when you WANT to instead of need to, visit “Tips for Retiring in Your Job, Not From Your Job.”
Sliding Successfully into 70
Are you thinking of retiring at 70? Despite the perception that 70 is old, many septuagenarians are living active lives. For starters, you’ll get 135% of your Social Security benefits. The average monthly benefit is $1,461. If you wait until you’re 70 before you collect benefits, you’ll get $511.35 more per month, on average. If you were to max out FICA contributions and retire at 70 in 2019, you could expect $3,776 in Social Security.*
If you haven’t collected any income from your retirement account, it’ll have 8 additional years of potential growth over retiring at age 62. For people between the ages of 65 and 74 who have a retirement account, the average account size is $358,000. At a conservative annual growth rate of 5%, the average account may grow to nearly $530,000. That’s more than $170,000 just for waiting.
(This is a hypothetical example for illustrative purposes and not representative of any specific situation. Your results may vary.)
As an example, you would need a portfolio value of approximately $3.2 million, split equally between qualified and nonqualified assets to generate $10,000 per month for living expenses, which would include a Social Security benefit of $3,776/month.**
Going for the Gold
Deciding when to retire depends on many factors, including age, health, finances, and your vision of retirement. Some may decide to retire early because of poor health. Others may want to build their retirement savings and wait to retire later.
In the end, layout your priorities, paint your retirement vision, and proceed with gusto.
Sources and Disclosures:
*Data Source: Social Security Administration with hypothetical inputs. These should not be taken as advice or accurate numbers for your specific situation.
**Illustration Assumptions: Retirement Ages: 62, 66, and 70; Inflation: 4%; ROR: 5%; Social Security Inflation: 2%; Living Expenses of $10,000/mo. (after-tax); $120,000/yr.; Kansas Income Tax Rate: 5.7%; Life Expectancy: Age 100
Additional Sources Available Upon Request
Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.
The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.
Published for the blog on June 27, 2019 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.