Thursday, June 25, 2015

Retire sooner rather than later / or Mo Money - Mo Money!

One of the biggest decisions many of us will have to make when considering retirement is - how soon should I retire?

The answer to that question, of course, depends on what you want out of retirement and how much money you will need to maintain the life you wish to live.

I can't really help you with the first part of the question as that is truly a personal decision, however, I might be able to help you a bit with the money part -- especially, if your question has to do with when to apply for your social security.

Full Retirement Age (FRA)
Most of the so called "financial experts" will advise you to NEVER take your benefit early!  I think they would have us all work ourselves to death in our jobs. They will usually encourage you to wait until FRA or beyond. The reason they will use is that, by not taking your social security early, you increase the chances of maximizing your cumulative lifetime benefits. 

If you take your benefit at the earliest eligible age (62) your benefits will be 25% lower than if you wait until FRA. On the other hand, if you wait until you are 70, (the latest you can take your SS) your benefits will be 32% larger than they would have been had you taken them at age (66). 

That is enough to scare most of us off. Personally, I think that is exactly what it is intended to do, as the facts are not so cut and dry. There are trade offs. More checks a bit smaller vs less checks a bit larger. Also keep in mind the average life expectancy (~ age 75). None of us have a crystal ball so we can't predict when our time will come, but based on the average life expectancy, I think that there are plenty of people who never got to claim their benefits at all and many more who only receive claims for a short period of time. More money for the government. Plus keep in mind the state of our country and the constant threats to social security.  Might be smarter to get what you can now!

Full Retirement Age: 
If you Were Born Between 1943 and 1954 
is 66

Want to know exactly how your Social Security benefits are reduced? go here

If you are within a year of FRA, you lose hardly anything by taking your money early (except if you want to continue working). Social Security has a formula that they apply which calculates an almost dollar for dollar exchange (meaning you end up with nothing). Unfortunately, I need to continue working until I move to Costa Rica as I cannot maintain my US standard of living on my benefits,  however -- I phoned my Social Security Rep and was told that in January (when I am 4 months from my 66th birthday (FRA) I can start claiming my benefit and continue to work with no penalty. So I will get 4 months of benefits  which will net me some thousands of dollars that I would have otherwise left on the table. And, my benefit payout reduction is so minuscule it won't make a difference. (also at FRA there is no penalty from SS if you work full time)

So that's what I'm gonna do.

If I could stop working or perhaps lived in someplace other than the Bay Area and could get by on my benefits, I would definitely apply earlier. For me, I think it would be well worth the reduced benefit payout. Look at the chart and calculate for yourself.

This tip was passed to me by a couple of my aspiring Costa Rica expat friends (thank you Marilyn & Charles) and I want to pass it along to you.

Do your homework


Pay this forward! 

BTW regardless of experts - 62 remains the most prevalent age at which people apply for benefits
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