When the time for retirement comes you may be ready, but your savings may not. Unfortunately, half of workers age 55 and older have less than $50,000 in savings, according to the Employee Benefit Research Institutes 2014 Retirement Conference Survey. The attorneys at Bodie Law answer a few common misconceptions about retirement and maximizing your social security payout.
At what age should I claim?
Age 62 is the youngest possible age to retire. This could be the right time if you and, if married, your spouse are both in poor health; otherwise, however, it is most likely a mistake. Accepting benefits this early means a reduced monthly social security check.
Comparatively, if you wait to accept benefits until age 66 to 70, you could earn 32% more than if you accept them at the earlier age of 62. For example, if you claim at 62 you would receive $1,050 a month, or $12,600 a year. If you postpone your claim till age 70 you could receive $1,848 a month, equivalent to $22,176 a year.
You can also maximize your Social Security benefits by having your spouse claim spousal benefits. When you reach your full Social Security age of 66 or 67, you could “file and suspend” benefits, allowing your spouse to collect as much as half your benefit when you reach your full retirement age and provide you with some extra money.
Although the median age to claim is around 62, don’t feel the need to go with the crowd. Continuing to work after that age will give you time to save and better position you for a comfortable retirement. The longer you wait to claim, the more money you will receive. Waiting until age 70 may not be quite what you had in mind, but the benefits of doing so may well make the wait worthwhile.
How much should I save?
In order to gain a better idea of how much to save, you should start by determining what assets and liabilities you have now, as well as an income and expense statement from the previous year. Form a net worth statement and establish what assets you have available for retirement. Do your best to aim for 75% of what you anticipate your expenses to be in your last year working to determine how much you will need.
Generally, you should start saving at least 10% of your gross income every month and try to pay off any high interest debt prior to retirement, especially credit card debt. Your savings should be put into tax-deferred accounts, such as a 401-K from your employer or an individual retirement account (IRA) that you open yourself at a mutual fund company or brokerage.
You should also consider utilizing the benefits of compounding. Even if you are 10 years or less from retirement, your investments will continue to compound your returns long after that.
Also think about cutting out small, unnecessary expenses, such as dining out, and more substantial ones, such as downsizing to a smaller home … and a smaller mortgage. Small lifestyle changes can add up to big retirement savings over time.
Should I work late in life?
Working after retirement may seem like a contradiction, but it will benefit you financially, and many find it fulfilling to remain in the workforce, even part time. Accepting an enjoyable part-time job after retirement will give you the social, intellectual and physical stimulation you need to ease into the transition of unstructured retiree life.
A study done by researchers from the University of Maryland found that men and women who continued working after retirement had fewer major diseases or disabilities than those who quit work completely. A similar study by geriatrics researchers from the Hadassah Hospital Mount Scopus in Jerusalem concluded that men and women who continued to work after age 70 were more than twice as likely to be alive at age 82 than those who had retired.
Whether it is a part-time or full-time job, finding work later in life will promote healthy longevity, and allow for a more comfortable retirement.
To find out more about retirement plans, contact the attorneys at Bodie Law today.