One of the most important decisions you will make in life is
the one regarding when to retire. There
are many considerations when you make this choice, among them:
*Your
health and medical history
*The
longevity of your family
*Your
ability and/or desire to continue working
You may begin receiving benefits as early as age 62,
however, if you begin your benefits early, you will have a permanent reduction
in your benefit payments. In addition,
to the reduction in benefits, another disadvantage of early retirement are
deductions for exceeding the earnings limit.
This earnings limitation, however, ends at full retirement age. The earnings limitation for 2010 is $14,160.
Social Security uses a formula to determine the reduction in your benefits if
you exceed that amount. If you were
under full retirement age for the entire year, you would lose $1.00 in Social
Security benefits for every $2.00 earned over $14,160. Earnings is considered any income from gross
wages reported on your W-2 Form and net profit from Schedule SE. The following would not be considered
earnings: Interest, Dividends, Capital
Gains, Rental Income or any other Investment Income.
An example of the amount of the reduction if you retire
early is:
If you
were born between 1943 and 1954, your full retirement age will be age 66. If you retire at age 62, your reduction will
be approximately 75%, at age 63 your reduction will be 80%. If you retire at
age 64, you will receive 87% of your benefit, and at age 65, you will receive
93%. These are permanent reductions in
your benefits.
However, many people believe you should begin receiving
benefits as soon as possible so that you can enjoy them longer. It will usually take at least 12 years of
receiving a higher retirement benefit to make up for the Social Security checks
you did not receive. In addition, the
12 year rule does not take into consideration the time value of money or the
loss of enjoying your retirement years earlier. Receiving income early could allow you the freedom to do many of
the things you have been delaying doing because of your work schedule, such as
travel, hobbies, spending additional time with family and friends.
You can retire and begin receiving Social Security benefits
as early as 62 or delay them until age 70.
If you delay receiving benefits, you will receive a permanent increase
in your payment amount depending on the number of months you do not receive
benefits between full retirement age and age 70. Delaying retirement until after full retirement age will result
in a permanent increase in your benefit amount. However, it takes approximately 12 ½ years of receiving the
increased amount to make up for the checks that you could have received between
ages 66 and 70, and, here again, the 12 ½ years does not include the time value
of money. Delaying retirement past age
70 will not result in a higher monthly benefit.
As mentioned previously, there are many considerations when
making this important decision. I
recommend going to the Social Security web site to review all the calculations
and requirements of early and delayed retirement as well as retiring at full
retirement age www.socialsecurity.gov/.
