Ah, retirement. That long-awaited life stage when all your hours of working, saving and family-raising efforts finally pay off. Youll be free to travel, spend time with friends and family and enjoy the hobbies you never had time for. No worries, no stress, nobody to answer to.
Except, without careful planning that scenario could be a fantasy. A 2017 Ipsos/USA Today poll found 45- to 65-year-olds surveyed, 30 percent had less than $100,000 in savings. Another 30 percent had no savings at all. No matter how much money you have invested for your retirement, deciding when to make the leap can drastically affect how far those investments can carry you.
Trying to decide when to retire? Here are some things to consider if you decide to retire at age 62 versus age 70.
Your Social Security Benefits
At age 62: More people (42 percent of men and 48 percent of women) choose to begin drawing Social Security at age 62 – the earliest the government will allow – says the Center for Retirement Research at Boston College. However, when you start receiving benefits before your full retirement age (FRA), you also limit the monthly amount received. For example, if your FRA is 66 (it is if you were born before 1959), and you start drawing at age 62, youll only receive 75 percent of the money you would at age 66. And the associated Social Security benefits your spouse is entitled to will be reduced, as well.
At age 70: If you wait until after your FRA and dont begin drawing Social Security until you turn 70, you actually have the opportunity to receive more than your full amount – think of it as a bonus for your years of hard work. Every month past FRA that you delay receiving benefits, youll get more money from Social Security. However, at age 70 that amount maxes out at 132 percent of your full amount.
Whether it makes more sense to start drawing at age 62, wait until 70, or choose a year in between, depends on your individual situation. If youre 62 and are having trouble paying your bills for any reason, then you shouldnt wait. If you plan to continue working and saving up until (or well past) your 70th birthday, it probably makes sense to hold out for the larger monthly payment.
Your Continued Work Opportunities
At age 62: If youre in good health, you may still feel quite young at age 62. Even if youre ready to ditch the 9-to-5 grind, you might not want to stop working completely. The ability to keep your mind sharp, stay current with technology, socialize with peers and continue earning a paycheck can be appealing. If your current career and health allow you to work part-time, you may want to consider it. In 2018, youre allowed to earn $17,040 annually before the government starts taxing a portion of your Social Security payments.
At age 70: While there are exceptions to every rule, most people feel ready to hang up their career persona by age 70. If youre not one of them, however, youre in luck – once youre past FRT, you can receive full Social Security benefits and earn unlimited income without penalty.
Your Estimated Life Expectancy
At age 62: None of us knows when our time will come, of course. If youre in your early 60s with health issues or a family history of shorter lifespans, you may want to consider retiring early. If you dont expect to live far into your 80s, beginning to draw Social Security payments sooner than later will net you a larger amount of money than if you wait to begin collecting payments. You can estimate your Social Security benefits for a variety of retirement ages, then calculate the tipping points between them. For example, if your FRA is 67 and your full benefit amount is $1,400 per month, if you claim benefits at age 70, you’ll need to live to at least age 80 to receive the total lifetime benefits you would have received had you claimed Social Security at age 62, says The Motley Fool.
At age 70: Even if youre one of the people who doesnt want to work their whole life through, sometimes continuing to earn an income for as long as possible is necessary. Many people dont consider that early retirement leaves them with the potential for many years left to cover. After all, if youre a man turning 65 this year, your average life expectancy is 84. If youre a woman, its almost 87. If youre not sure your savings, Social Security and any pension you may be entitled to will be enough to cover your expenses for decades to come, working as long as you can could be a smart idea.
Making sure your life insurance coverage is enough to take care of your familys needs once you’re gone is also a smart idea – at any age. The sooner you get coverage, the better.
Your Financial Obligations
At age 62: Unless you bought a home early in adulthood and havent moved, theres a solid chance youll still be paying down a mortgage in your early 60s. While home ownership comes with expenses, youll be better off owning your home before retiring. If you rent and want to retire at 62, its important to make sure you have enough saved rent payments. Youll also want to consider the age of your car, commitments to putting children through college and any other debts.
At age 70: By age 70, youve hopefully had extra time to get your financial affairs in order. Before you retire, you should try to have your living situation squared away, a fairly new vehicle and no other outstanding debts.
No matter your age, be sure to consider the effects of inflation when youre mapping out your expenses and resources. Even if youre living in a paid-off home and driving a paid-off car, the costs of food, fuel, medication and property taxes will continue to rise throughout retirement.
Your Health Insurance
At age 62: You wont become eligible for Medicare until you turn 65. If you retire at age 62 and don’t have health insurance through work anymore, you will have to find and pay for your own (often expensive) coverage. Considering a recent Nationwide Retirement Institute survey found 37 percent of retirees said health issues had prevented them from living the retirement they wanted, purchasing adequate coverage is key for any retiree.
At age 70: After age 65, youll be covered by Medicare, which includes Part A (hospital coverage), Part B (medical insurance), Part C (Medicare advantage) and Part D (prescription drug coverage). Medicare likely wont be free, but depending on your income, it should be quite affordable.
Your Continued Savings Opportunities
At age 62: If youre like most Americans who find themselves dramatically lacking in retirement savings, its probably a good idea to keep working past age 62. Past age 50, you have the opportunity to put an extra $6,000 annually into your 401(k) and an extra $1,000 annually into an IRA as a catch-up provision. If your expenses are lower at this life stage you have the opportunity to sock even more money away to delay retirement.
At age 70: If youre reaching age 70 and dont have any retirement savings to speak of, its probably a good idea to start looking at ways to drastically reduce your expenses instead. Find out what your Social Security benefits will be, and create a bare-bones budget to see if its feasible to live off Social Security, like the Social Security Administration estimates 21 percent of married couples and 43 percent of single seniors do.
Understanding Healthcare Costs in Retirement
Estimate Your Income in Retirement Annually