These days, everyone is taking a new look at their finances, and no one is looking more closely than the millions of baby boomers who are nearing retirement age. While some boomers expected to retire at one of the traditional milestones, such as age 62, the current economy is forcing many of you to re-evaluate your plans. You may be wondering if you should work longer, or how your or your spouse’s Social Security benefit would be affected if you continued working.
As most workers know, your choice of a retirement age from 62 to 70 can dramatically affect your monthly Social Security benefit amount. If you choose to start receiving benefits early, the monthly payments will be reduced based on the number of months you receive benefits before you reach your full retirement age.
The rate of reduction will depend on the year you were born. The maximum reduction at age 62 will be:
25 percent for people born between 1943 and 1954.
30 percent for people born after 1959.
If you wait until your full retirement age, your benefits will not be reduced. And if you should choose to delay retirement, your benefit will increase up to eight percent per year from your full retirement age until age 70. However, there is no additional benefit increase after you reach age 70, even if you continue to delay taking benefits.
Before you make these decisions, wouldn’t you want to know how long you could anticipate receiving benefits? Your life expectancy varies with age. The older you get, the older you are expected to live. According to the Social Security website, if you are a 65 year old man in 2009, you are expected to live 16.49 years. But if you are a woman who is 65 years old in 2009, you are expected to live a little longer, 19.12 years.
If you live to exactly your life expectancy at the time you began receiving benefits, your lifetime Social Security payments will be the same regardless of when you choose to start Social Security. When you live longer than your life expectancy at the time you began receiving benefits, your overall lifetime payments will be higher the later you waited to begin Social Security. On the other hand, if you died before your life expectancy at the time you began receiving benefits, your total lifetime benefits will usually be higher the earlier you started Social Security.
Social Security has created several retirement planners to help you make an informed decision. To help you determine when to apply for Social Security, there is a fact sheet called When To Start Receiving Retirement Benefits published by Social Security Administration.
Social Security has an online calculator that can provide immediate retirement benefit estimates to help you plan for your retirement. The online Retirement Estimator uses information from your own earnings record and lets you create “what if” scenarios. You can, for example, change your “stop work” date or expected future earnings to create and compare different retirement options.
These tools and general information about Social Security can be found at HYPERLINK “http://www.socialsecurity.gov” www.socialsecurity.gov.
Retirement decisions are unique to everyone. Make sure you are up to date with the important information you will need to make the choice that’s right for you.
By: Matthew M. Wallace, CPA JD
Published edited November 15, 2009 in The Times Herald newspaper, Port Huron, Michigan as: Tools to help you find the right time to retire