Saturday, August 17, 2013

The 3 Numbers that can Alter My Retirement…or can They?

When it comes to retirement, there can be so many variables.  From health issues and life expectancy to cost of living, location, investments, and savings, there are any number of factors that can play heavily into deciding when to retire.  However, just about everyone considering retirement is bound at some point to consider Social Security (unless they’re on a particular pension plan or in a similar situation where they might not receive Social Security) and when the best time to take benefits is.

I know I’ve considered this aspect of retirement planning, and I’m still in my 30s.  And when I review my estimated benefits, there are three main numbers that stick out when it comes to Social Security…ages 62, 66, and 70.  It might seem that these retirement ages could heavily impact retirement, and depending upon one’s situation, it could.  However, there might not always be as big a financial difference between these numbers as some experts might have us believe.

Retiring at age 62
As I’m sure that many do, I prefer the thought of retiring at an earlier age.  While I enjoy my work, being able to do a bit less of it is certainly appealing.  Therefore, age 62 would be a great age for a full retirement.

There are two main issues to this.  First off, as someone in his mid-30s, I don’t expect this age to even be an option by the time I retire since there is already talk of pushing the retirement age higher.  The second hiccup to this aspect would be that I’ll be retiring after 2033, the date the Social Security Administration notes as the year in which the trust fund would only be able to pay about 75 percent of currently estimated old-age benefits.

According to a recent US News and World Report article, “For each $1 in benefits you'd get when claiming at age 66 (the so-called full retirement age for most people right now), you'd receive only 75 cents if you claimed at age 62…”.

Based upon that calculation (and praying that fixes are made to the system by 2033) and using an estimated benefit amount of $1,000 a month from age 62 to 80, at today’s numbers, I’d receive 216 payments (18 years x 12 monthly payments) x $750, which would total $162,000 in benefits were I to retire at age 62. 

Retiring at age 66
Age 66 might be the more standard retirement age right now when considering full retirement.  This is when full benefits start to kick in for current retirees without any early retirement penalties.

Using the estimated benefit amount of $1,000 a month from age 66 to 80, and the US News & World Report estimates, I’d receive 168 payment (14 years x 12 monthly payments) x $1,000, which would total $168,000 in benefits through age 80.

Retiring at age 70
Then there is retirement at age 70, an age that many of us probably feel is just a little too late.  But is it worth waiting to take Social Security benefits until this age to get the higher benefit amounts?  Well, if I was guaranteed to live longer it might; but otherwise, I would be delaying taking payments but still likely have the same life expectancy.

So even with higher benefit amounts, this might not make as big a difference in overall payouts as I might think.

Using the estimated benefit amount of $1,000 a month from age 70 to 80, and the US News & World Report estimates, I’d receive 120 payments (10 years x 12 monthly payments) x $1,320, which would equate to $158,400 in benefits by age 80.

Selecting the right age
So when looking at retirement age numbers when it comes to Social Security, while there might seem like there is a big difference between payment amounts, compared to a set life expectancy date, the overall numbers may not be as significant as some financial planners might lead us to believe.  While payments might be greater if we wait to take benefits, taking lower benefits amount over a longer timeframe could make up for much of those higher payment numbers.

While everyone’s situation can be different when it comes to Social Security, it’s just something to think about as we try to factor this particular benefit into our retirement plans, and not a viewpoint that we always get from the financial experts.

The author is not a licensed financial professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Calculations have not been verified by a professional.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

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