When Should I Retire? A Helpful Guide
My clients often ask me, “When is the best age to retire?” Ultimately, there is no one “best age” and your choice will be informed by several factors.
The decision on when to retire is one of personal preference.
Your full retirement age is based on the year you were born, but you can start your retirement benefit at any point from age 62 up until age 70. You can find your full retirement age with this calculator provided by the SSA.
The above being said, your personal answer to the question “When should I retire?” will take into account several factors, including:
- Your current cash needs
- Your current health
- Whether you are married
- Your family longevity
- Whether or not you plan to work in retirement
- Whether or not you have other sources of retirement income
- What your future financial needs and obligations are likely to look like
You should carefully weigh all of these before making your decision. Every situation is different.
Your monthly retirement benefit will be bigger if you wait longer to retire.
One of the big reasons people have for waiting is that your monthly benefit increases the longer you wait (until age 70). Here is a chart from the Social Security Administration that explains how your benefit can change based on how long you wait to retire.
As you can see, assuming you would have a full benefit of $1,000 a month at age 66, you could choose to wait to retire until you were 70 and collect a higher benefit – or you could start collecting a lower benefit at 62. If you currently have other sources of income and you are in good health, it makes sense to wait. Additionally, if you are married, waiting results in higher survivor’s benefits for your spouse if you die before they do.
However, waiting is not best for everyone. If you are in poor health and do not have other sources of income, it is better to retire early, especially if you think you will not live for a long time after you retire.
You can use Social Security’s Retirement Estimator to estimate how much your retirement benefits will be.
Will my monthly benefits increase every year if there is a COLA increase?
Maybe. Based on the best projections and predictions, in 2034, all Social Security benefits will probably be decreased dramatically. See my article 9 Social Security Reform Myths – Busted!, for more information. I also wrote about how the positions of the political candidates in the last election differed on this issue in my article, What You Really Need to Know About the Positions of the Candidates on Social Security Reform.
You can find additional information about COLA increases here: Social Security Disability Benefits to Rise in 2017
How do I know what my housing, insurance and health care costs will be throughout my life?
It is very difficult. 25 years ago very few experts would have foreseen the cost of insurance and health care that we are seeing in this decade.
“From 1960 through 2013, health spending rose from $147 per person to $9,255 per person, an average annual increase of 8.1 percent. In comparison, per capita adjusted personal income was $2,267 in 1960, and in 2013 it reached $42,266, reflecting an average annual growth rate of 5.7 percent. As overall health spending increased at a faster rate than personal income, household expenditures on health as a share of adjusted personal income grew from 4 percent in 1960 to 6 percent in 2013.” (Source: CMS.gov)
When you plan ahead, keep in mind that there are many unknowns. Talk to a qualified financial planner or study resources available on the AARP website. The article Tips for Retiring on Social Security Alone has many good ideas for cutting your cost of living.
What happens if I work and get Social Security retirement benefits?
You can get Social Security retirement benefits and work at the same time. However, if you are younger than full retirement age and make more than the yearly earnings limit, Social Security will reduce your benefit. Starting with the month you reach full retirement age though, Social Security will not reduce your benefits no matter how much you earn.
The SSA uses the following earnings limits to reduce your benefits:
- If you are under full retirement age for the entire year, $1 is deducted from your benefit payments for every $2 you earn above the annual limit. For 2017, that limit is $16,920.
- In the year you reach full retirement age, the SSA deducts $1 in benefits for every $3 you earn above a different limit, but they only count earnings before the month you reach your full retirement age. If you will reach full retirement age in 2017, the limit on your earnings for the months before full retirement age is $44,880.
For more on this topic, see this article from the Social Security Administration.
What if I retire and then decide to go back to work?
Re-entering the workforce after 50 is a very difficult prospect. A highly competitive labor market and the difficulty of staying up to date in one’s field both contribute to barring those over the hill from returning to work. For mothers, there is another hurdle: the stigma in the working world against stay-at-home moms. In fact, a recent survey reported by USNews.com suggests that only four in ten mothers who stop working eventually return to work.
Career experts recommend that people attempting to re-enter the workforce have a specific idea of what they want to do and focus all their efforts to that end – otherwise they risk seeming ambivalent or apathetic in job interviews. Be cautious, though, if you are planning on going back to school. Many unemployed adults over 50 assume that a new degree will serve as the ticket to a new and fulfilling career. Unfortunately, this is not necessarily the case – just ask the millennial with a bachelor’s degree who is ringing up your groceries. Before taking on any expensive coursework, always check that the job market is good in that field and in the area where you plan to live.
Networking may be the most beneficial action that adults looking to return to work can take. Vivian Steir Rabin, coauthor of Back On the Career Track, told USNews that “relaunchers” are most likely to get a job through someone they know. Volunteer groups, church groups, alumni associations, old colleagues, and friends of friends are all good networking opportunities to pursue.
For more on this topic, see my article: If Social Security Says You Can Work, Use These Job-hunting Tips
Could the timing of my retirement affect other family members?
Timing matters in a big way.
Many people do not realize that if they are retired and raising a grandchild or step-grandchild, they could be eligible for as much as one half of their Social Security benefit amount in additional dependent child benefits.
Conditions do apply. The child must be a minor. You must have earned enough in your working years to be eligible for dependent child benefits. Both parents of the child must either be dead or ruled disabled and receiving benefits. If one or both parents is living, unable to work, but has not filed a Social Security Disability claim, waiting to retire until that claim is filed and approved will make a large difference in the monthly benefits you receive.
See this article for more information: Grandparents raising grandchildren – Who knew Social Security might be there to help!
I have heard there is a complicated way to start and stop benefits and get higher retirement benefits for a couple, is that true?
This method is known as “file and suspend”. I have written about it before in this article. It only applies to people who were born before January 1, 1954 and involves claiming benefits on a retired spouse. People born before January 1, 1954 are legally able to file a restricted application for spousal benefits (1/2 of the other spouse’s benefit) while letting their own benefit grow to the maximum amount at age 70.
This is a very involved decision and should be discussed in depth with your financial adviser before going forward.
For more information on this topic, see the SSA publication entitled How Work Affects Your Benefits.
For more information on retirement in general, refer to the SSA publication When to Start Receiving Retirement Benefits.
Joni Beth Bailey is a Southern Illinois Social Security Disability Representative.