According to the New Jersey Society of Certified Public Accountants (NJSCPA), choosing when to retire and start drawing Social Security benefits is an important decision — one that is unique to each individual. Based on Social Security regulations, you can begin taking payments as early as age 62, but the age at which you retire will have an effect on the amount of your payment.
How Payments Are Calculated
Your Social Security benefit payments are based on your work history; the more money you have earned over your career, the higher your benefits.
As mentioned, your retirement age will also have an impact. Although you can begin collecting payments at age 62, you will not yet have earned full benefits. That means that your payments will always be about 25 percent less than they would have been if you had waited until full retirement age. However, early retirees will face benefit forfeitures for working while receiving benefits. If you continue to work to age 70 and beyond, you will receive more than the full benefit amount when you finally do decide to retire. Remember, too, anyone born in 1938 or later will no longer receive full benefits if they retire at age 65, which for many years was considered the official retirement age. Depending on the year you were born, you may have to wait as late as age 67 to retire with full benefits.
An Informed Choice
So, when’s the best time to retire? If you are a healthy person who enjoys working, it’s probably best to continue doing so as long as possible without drawing on Social Security. Sometimes, the decision to continue working might be less about choice and more about necessity. If you are in poor health, it may be best to take your payments as soon as possible. (You can apply for Social Security disability benefits at any age if you are no longer able to work.) However, if you have a large retirement nest egg and don’t need the maximum Social Security benefit, you can always choose an early retirement. Whatever your choice, don’t forget to register for Medicare health care coverage when you turn 65.
Your Report Card
Every year you receive a Social Security statement that details your earnings history and estimates what your payments would be at different retirement ages. It also discusses the disability benefits you can expect if you are severely disabled and survivors’ benefits that eligible family members will receive if you die. This statement is a great tool to use as part of your overall retirement plan. You can find more information at the Social Security website, www.ssa.gov.
One Part of the Plan
According to the Social Security Administration, your Social Security payments will likely replace about 40 percent of your pre-retirement income. The government also estimates that you will be able to live during retirement on about 70 to 80 percent of your previous income, although some financial advisers believe you may realistically need 100 percent of your pre-retirement income. That means your Social Security checks alone will not be enough to provide you with a comfortable retirement. It all depends on your retirement lifestyle. In addition to any pension payments you may receive from former employers, you should also plan to have sufficient personal savings and investments to cover your costs.
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