The dilemma of the American worker: Should I retire at age 70 and collect the maximum amount of Social Security each month, or should I retire earlier, at age 62, and receive smaller monthly checks over a longer period of time? Unfortunately, there is no simple mathematical equation that can help you choose. Rather, you must carefully consider a host of financial and personal factors when approaching this fork in the road to retirement.
The Scale of Benefits
Consider Jane, an American worker looking ahead to retirement. When Jane reaches retirement age, the Social Security Administration will determine how much she can receive each month, basing its calculations on her average lifetime earnings. At 62, which the Social Security Administration calls the early retirement age, Jane begins receiving a check each month for $750. Had she chosen to retire at age 67, the full retirement age, she would have received $1,000 per month. Had she waited until age 70, she would have received $1,320 per month, which is 57 percent more than the amount she now receives.
The Long Retirement
According to the Centers for Disease Control and Prevention, U.S. males live an average of 78.2 years; females, 80.6 years. Based on these figures, if Jane starts collecting Social Security at age 62, she will receive the same amount (maybe adjusted for inflation, maybe not) each month for 18.6 years. If she lives to be 90, like her mother, or 94 like her grandmother, her retirement years could account for a full third of her life. As each month passes, however, that $750 check from Social Security buys less. Should she have waited to retire?
The Short Retirement
In the years immediately following her retirement at age 62, Jane traveled, spent time with friends and family, and enjoyed retirement to the fullest. Sadly, at age 71, life changed. Jane had a series of unexpected strokes, which left her physically diminished. Though she could still live on her own, her traveling days were over. “Thank goodness I retired when I did,” she said. “Those years of travel and fun that I had while I was still healthy are priceless.” And therein lies the risk that comes with working longer. Workers who could retire earlier at reduced benefits are trading precious time for greater financial security. While Jane was laughing with friends, others her age were reporting to work. Jane now lives a modest life within the financial limitations of her retirement portfolio. She is content with her decisions. Many in her situation, though, might not be.
You Are Not Alone
As you weigh the pros and cons of various retirement scenarios, be mindful that your decisions could ultimately impact your family and loved ones. For example, your spouse may be eligible to receive a benefit based on your work record. If you retire early, but die before your spouse, he or she will only be eligible for a reduced spousal benefit. If you retire at the full retirement age or later, your spouse can receive the full benefit you were receiving.
Your Personal Best
Whether they are smaller or larger, Social Security benefits are an integral part of most Americans’ retirement portfolios. Yet, they should only be a part. Every American must employ 401(k)s, IRAs, pensions, and other retirement tools in concert with expected Social Security benefits to create safe, secure futures for themselves and their loved ones. When you have a fully funded, comprehensive retirement plan in place, determining how long you wish to work becomes much easier to do.