Retirement today may mean something very different than it did a few years ago. It may mean that someone has applied for Social Security benefits or it may simply mean that someone is no longer working. Retirement can also mean that someone has chosen to continue working, either full or part-time and still receive Social Security benefits.
All these options are available, but before taking the steps to these options, careful consideration needs to be done in order to ensure the right decisions are being made. Taking early retirement may mean that there will not be enough income and delaying retirement may mean that there are not enough years left to enjoy the increased income. Finding the right balance is the key to successful retirement planning.
Crunch the Numbers
There are online calculators and estimators that can help determine retirement income estimates. When using these tools, it is best to use accurate data as much as possible, but it can also be very eye-opening to create “what if” scenarios. Change dates, income levels, and years of service to see what would happen if the situation was different.
Longevity Rates Going Up
It is important to remember that the retirement income should be adequate to cover a long period of time. People are living longer than they used to. According to statistics presented by the Social Security Administration, the average 65-year old today will live to be 83; one in four 65-year-olds will live to be 90, and one in 10 65-year-olds will live to age 95.
Apply for Medicare Insurance
No matter what age retirement is planned, it is important to complete the application process three months prior to the actually planned retirement month. Even if someone is not expecting to collect benefits at retirement, signing up for Medicare three months before turning 65 is very important. Delays in doing so could delay Medicare medical insurance and prescription benefits and even result in higher premium payments.
Working while Retired
Full retirement benefits can still be drawn if the retiree is at full retirement age and still working. Income does not affect retirement benefits in that case, but if the retiree is below full retirement age, there are limits on how much income can be made before it affects Social Security benefits.
However, this does not mean those benefits are lost, it just means that the benefit amount paid while the retiree is working will be less, but when the retiree reaches full retirement age, he or she will have earned more credits and the benefit amount will be higher. Accurate earnings records must be kept by both the retiree and the Social Security Administration in order to determine the effect working while retired have on benefits.
The full retirement age for persons born between 1943 and 1954 is 66. For others not born during those years, the full retirement age can be found on the annual Social Security Statement. Those statements are typically mailed to everyone who has a work history once a year in the late summer or early fall. To qualify for Social Security benefits a worker not only has to reach a certain age, but he or she must have earned a minimum of 40 credits. Credits are earned at the rate of up to four per year. One credit equals $1,090 in income. Once a worker has earned $4,360, he or she has earned four credits for that year.
With 40 earned credits, a worker can retire as early as age 62 and start drawing Social Security benefits. Those benefits, however, will be reduced based on the number of months until the worker reaches full retirement age. For example, a worker who retires and starts drawing benefits at age 62 will see a 25% reduction in benefits; 63-year-olds’ benefits will be reduced by 20%, and someone who retires at ages 64 or 65 will see approximately 13 and 6 percent reductions respectively. Those reductions are lifetime reductions, meaning that the benefit is not raised to the full amount when the retiree reaches full retirement age.
On the other hand, if the worker decides to work past his or her retirement age, the benefit will increase by a certain percentage for each month after retirement age before the retiree reaches age 70. This percentage is based on the year the person was born, as shown in the table below;
Year of Birth Yearly Increase Rate
1943 or later 8.0%
If someone retires early, he or she will see a reduced rate, but if retirement is delayed there may not be enough years left to enjoy the increased benefit. The key is to find a balance that fits each individual lifestyle and expectations. There is a wealth of information available on the Social Security Administration website. Log on to explore retirement options and make decisions regarding benefits, survivor rules and more.
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