Keeping your retirement goals top of mind is key to keeping your strategy on track, regardless of your age.
When Is It Time to Begin Taking Social Security?
Retirement planning should start with answering big questions and end by resolving small details. As you work toward your life goals and your retirement picture becomes clearer, deciding when to take Social Security benefits can have a huge impact on your lifestyle after working full-time.
While early withdrawal, for example, provides more immediate access to income, the monthly income you receive is lower than if you wait until full retirement age. The impact of this decision extends past your lifetime and could have repercussions for your spouse if he or she elects to continue receiving your benefits instead of their own.
“After a lifetime of saving, finally stepping into retirement can be an emotional transition,” said Joe Correnti, senior vice president of brokerage product. “However, planning your Social Security withdrawals as part of a larger effort to manage your nest egg can provide a tremendous sense of freedom to the new opportunities and challenges you’ll experience.”
Social Security Considerations
As of January 2016, the average retired worker received $1,341 per month in benefits. Receiving that payout won’t be enough to cover most retirement scenarios, and Social Security wasn’t designed to be your sole source of income. Think of Social Security benefits as one component of your retirement income, supplementing applicable savings accounts and pension distributions.
Although you can claim partial Social Security benefits as early as 62, you aren’t eligible for full Social Security benefits until you reach your full retirement age (67 for those born in 1960 or later). It pays to delay, if you can. If you wait to claim benefits until age 70, your benefits will increase by at least 75% over the early withdrawal at age 62.
Your 50th birthday is the first late-career milestone with additional considerations for retirement planning. Although you can’t file for Social Security until age 62, having more than a decade of increased retirement contributions could help you avoid the penalties for early withdrawal.
However, as you work toward retirement, keep the following milestones in mind to prepare for the transition:
Age 50 – Consider increasing annual retirement contributions through “catch up” provisions. This could be especially helpful if you’ve fallen behind your retirement goals.
Age 59.5 – You can access your retirement savings for unplanned events without early withdrawal penalties. Accessing your retirement savings without penalty could provide the income you may need to avoid the penalties for taking Social Security before you have earned full benefits.
Age 62 – The earliest you can file for Social Security, but with reduced benefits against your full retirement age.
Age 65 – Enroll in Medicare within a 7-month window of your birthday to avoid higher premiums associated with medical expenses in retirement.
Age 66/67 – Your full retirement age for Social Security benefits, depending on your birth year. Withdrawing at this age guarantees a full payout of the benefits you’ve accrued throughout your career.
Age 70 – The age when you can receive the maximum Social Security benefits by waiting to claim. While early withdrawal before your full retirement age carries penalties, you can delay taking benefits beyond full retirement age to accrue a premium for your benefits.
Age 70.5 – Keep in mind that half a year after waiting for the maximum Social Security distribution, the IRS requires you to begin taking required minimum distributions from certain retirement accounts to avoid tax penalties. You can always reinvest those funds, but they will be taxed on the amount withdrawn.
“Adding these considerations into your financial plan will not only tell you when you could retire in the future, but whether you need to make any adjustments in the present,” Correnti said.
Medical Care Expenses
The Social Security Administration recommends that you apply for Medicare within 3 months of your 65th birthday, regardless of when you begin taking benefits. Waiting any longer can increase the costs of health insurance and prescription drug coverage.
“Given the personal nature of healthcare, you’ll want to review your family history and make any necessary adjustments,” said Correnti. “Social Security is just one consideration, but most standard retirement scenarios don’t account for long-term care expenses and they’re a huge part of retirement spending for many Americans.”
Next Step: Review these 6 considerations before drawing from your retirement funds.
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