Early Retirement and Social Security

I probably don’t have to worry about early retirement since I am way behind on my retirement savings but for those of you who are considering early retirement and planning on collecting Social Security there are several things to consider.

Millions of Americans are coming up on their long-awaited break from the workforce. With the first wave of the baby boomer generation reaching the age to begin to draw Social Security, many people are wondering if it is worth taking the hit and retiring early. This plays into both Social Security and withdrawing the retirement accounts, which usually hold a high penalty and taxes for early withdrawal.

What Decisions Do I Have To Make?

According to the U.S. Census, over the next five years more than 15 million people will begin to cross into the age bracket for early retirement; 62. Many of these people will consider retiring early and collect Social Security benefits. Some may consider waiting until the normal retirement age.

There are actually three options for people to consider when thinking about retirement and that is to retire early, retire on time, or wait even longer for increased Social Security benefits by postponing retirement. The delayed retirement allows the government to hold the money and make more interest over the next few years, which they then promise a larger payout for the delayed retirement.

Basis for the Decision

Retirement age depends solely on the year of birth. While that seems like it is obvious, there is a slight variation from what you might think. For example, those people who were born before 1937 get to claim full retirement at age 65. For those born between 1943 and 1954, the retirement age is 66 while those born after 1960 can’t claim full retirement until the age of 67. The gaps between years have a graduated retirement age. To find out more, check the Social Security website at www.SSA.gov

Pulling from Social Security between the age of 62 and the normal retirement age means that you only receive a portion of your Social Security benefits each month. Not only this, but if you need additional funds pulled from your retirement account, the government will probably penalize you there, too, either with taxing what you withdraw or taxing the entire amount once.

Holding on to what you have and retiring late not only saves you the fees, taxes and reduced Social Security benefits, it actually adds to your monthly income. For every year past retirement age, Social Security will add an additional amount of money on to your monthly checks. This means you have more to live on month-to-month and need to pull less from your retirement account. Yes, this also means that you will work longer, but you can use that money to put more into savings or continue to add to your retirement funds.

Making the Decision

Doing some simple calculations will prove that waiting to retire until you reach the right age, or even delaying until 70, will be better financially. You will have time to earn more money and also another 8 years to let that money grow before touching it. Plus, you have the added money that Social Security provides, which doesn’t hurt either. Unless you know you have enough to survive on, don’t chance it. Stick with the program for a few more years. It will all pay off in the end.