Posted by Anonymous
As you get closer to retiring, you may start to wonder when the best time is to call it quits. There are ways to figure out the best age for you, personally, to retire and here are some basic guidelines to help you make this decision.
Full Retirement Age
First off, you should understand some of the terminology that goes along with retirement. Your full retirement age (FRA) is the age at which you can receive your full retirement benefit. Your FRA is usually between the ages of 65-67 depending on your employer. You can start receiving monthly benefits as early as the age of 62, but your monthly benefits will be reduced a fraction of a percentage for each month before your full retirement age. These reductions are meant to spread your retirement benefit over a longer period of time. The reductions are as follows:
5/9% will be deducted for each month up to 36 months prior to your FRA.
5/12% will be deducted for each month if you retire more than 36 months prior to your FRA.
30% is the maximum allowable monthly deduction.
Delayed Retirement Credit
If you retire after your FRA your monthly benefits will increase. This increase is called delayed retirement credit and it rewards you for potentially having to use your retirement benefit for a shorter period of time. However, once you reach the age of 70 you will not receive delayed retirement credit so do not hold off on retirement for too long.
On a side note, regardless of when you decide to retire, you should still sign up for Medicare within 3 months of your 65th birthday in order to avoid medical insurance and prescription drug coverage cost increases. Signing up for Medicare will not affect any delayed retirement credit.
When should I retire?
Now that you understand a little bit about the pros and cons of early versus late retirement, you should look at certain aspects of your life to help determine which retirement age best suits your situation.
Genetics play a big role in how long we can expect to live. Take a look at your family history and determine a realistic life goal for yourself. If your parents and grandparents lived to be in their 80's or 90's you may want to delay retirement as you might need the extra money in later years. By today's standards:
25% of 65 year olds will live to be at least 90 years old.
10% of 65 year olds will live to be at least 95 years old.
Just by getting to a certain age increases your odds of hitting your next milestone. Really consider your family's average longevity when deciding your retirement age.
Speaking of life expectancy, your health is obviously of huge importance in predicting this. Consider early retirement if you have seen your health worsen in recent years. Not only will this be beneficial to help sustain whatever health you have left, but you might as well begin receiving your retirement benefit while you can still gain from it. On the other hand, if you find that you are still in relatively good health, putting off retirement is a good idea so that you can maximize your delayed retirement credit.
Before retiring, find out what your company's policy is on health insurance coverage. Will you lose it when you stop working? Once you stop working, can you extend it until you're 65 years old? Again, depending on your health, you may not be able to postpone retirement until age 65 (when you are eligible for Medicare); but if your company does not offer post-retirement coverage you should really try to hold off so you can avoid enrolling with a costly private insurance company. Companies that offer extensive health insurance coverage to their retiring employees are, unfortunately, the exception and not the rule but they are out there, which is why it's important to find out where your employer stands.
If you're married, find out if you are eligible to receive coverage from your spouse's insurance. Perhaps your spouse plans to continue you working longer than you, or maybe they are one of the lucky ones who receive post-retirement coverage. Either way your spouse's coverage often extends to you, and if you've never taken advantage of that, retirement is definitely the time.
Are you eligible for someone else's retirement benefits?
If you are a widow, widower or surviving divorced spouse you may be eligible to receive retirement benefits in place of your deceased loved one. If this is the case, you could retire but opt to postpone your retirement benefits until age 70, all the while receiving your former spouse's benefits and capitalizing on your own delayed retirement credit.
If you are fortunate enough to have financial stability in your later years, even without retirement benefits, you definitely have more options. You can decide to hold off on your retirement benefits until you are 70 and receive the maximum delayed retirement credit; or you could choose early retirement and increase the value of your benefits by investing your new monthly income instead of spending it.
Do you have family members that will also qualify for your benefits?
Sometimes a spouse or minor or disabled children are eligible to receive benefits in addition to your own. If you find yourself in this situation, early retirement could prove to be advantageous because the value of your retirement benefits would increase, and thus, so would your monthly installments. However, you must also consider your responsibilities if you should pass on before these family members. If you retire before FRA, your family members will not receive the full benefit amount because the maximum amount is based on if you were still alive. But this means if you retire after FRA, your surviving family members will receive the full benefit amount plus any delayed retirement credit deserved.
The benefit of social security is meant to reward you for a lifetime of work and help to make your final years truly golden. Determining what age to retire is a somewhat strategic decision that can greatly affect the quality of life you lead down the road. Considering all your options will help ensure you make the right decision for yourself and for your loved ones.