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When to Retire

When to Retire

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/.

Copyright © Ask Jan Jaffin Indialantic, FL
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