Does Age Matter?

The most frequent question that gets asked is, when is the best time to retire? The current average retirement age in the United States is 62.3 years for women and 64.6 years for men. The age that you do end up retiring will affect your finances. Determining the right age for you will be the path that leads to a comfortable and quality retirement.

When to collect Social Security?

Social Security benefits were set-up to establish 65 as the standard retirement age. Individuals would work for the majority of their adult life retire, and then receive retirement benefits at 65. Many economic and workforce factors have significantly changed since then. Now in 2023, Social Security full retirement age is 66 for those born between 1943 and 1954. Anyone born from 1955-1959, the full retirement age is stepped up 2 months per year.  The full retirement age is then 67 for anyone born after 1960. Those who retire at the age of 65 or earlier and claim benefits, will only receive 75% of the full amount. Those who retire between the ages of 66-67 will claim their full un-reduced Social Security benefits. When a reduction in your benefits is applied it is permanent and you won’t be able to receive your full amount in benefits. This is why it is better to file for Social Security later rather than earlier. Waiting to collect your Social Security benefits, up to age 70, will result in higher monthly payments. This is why it is recommended to hold out to make sure you can collect your maximum amount. It is very important to understand that Social Security benefits are an important source of funds in retirement, but should not be your complete security net to supplement your retirement plans.

When are Medicare Benefits needed?

When you turn 65 you qualify for Medicare coverage. If you are deciding to retire earlier than 65, it will require planning and budgeting for out-of-pocket costs to purchase health insurance. If you are already receiving benefits, the Social Security Administration will automatically sign you up at age 65 for Medicare Part A and Medicare Part B. Medicare Part A is hospital insurance and other nursing facilities and Part B covers doctor’s visits. To be fully covered people should consider prescription drug coverage (Part D) with a supplemental plan or a Medicare Advantage plan (Part C). For Medicare part D you’ll need to enroll yourself as it is not automatically provided once you turn 65. There is a 7 month window specific to enrollment. 3 Months before, month of, and 3 months after your 65th birthday.  It is recommended you do this in a 7 month window around your 65 birthday. If you miss this period you may receive a penalty. The penalty is permanent and can change every year based on the number of months you didn’t have creditable coverage. There is a late enrollment penalty too if you have to buy Part A, and if you don’t get it when you’re first eligible your monthly premium may go up 10%. You’ll have to pay the penalty for twice the number of years you didn’t sign-up. This includes Part B as well with late enrollment. You’ll have to pay an extra 10% for each year you could have signed up for Part B, but didn’t. This late enrollment of Part B is a permanent penalty as well. Another option available to individuals is Medigap. This is a private insurance made to compliment traditional Medicare and prescription drug coverage.

How can Pensions and IRAs speed up retirement?

If you are looking to retire early these types of accounts will help exponentially especially if you are planning to retire before the age of 65. Fidelity Investments figures that “Individuals retiring at age 65 should aim to have 12x their pre-retirement salary saved.” This shows that the earlier you retire, the more funds you will need to allocate for. Beginning at the age of 59 ½ individuals can start to withdraw money from their qualified plans and IRAs with no penalty for withdrawal. Especially In today’s financial environment, chances are you will need more than just Social Security benefits to retire comfortably. A Roth IRA is a commonly used retirement account that has a unique tax advantage. The main benefit of a Roth IRA is that your contributions will grow in the account with the ability to be withdrawn tax-free after it has been open for at least five years and once you reach the age of 59 ½ . The required minimum distribution age is now 73. For those who delay their retirement, they are obligated to start their required minimum distributions (RMDs) from their retirement accounts at this age. One other benefit of a Roth IRA is that there is no RMD for this retirement account. This is why having a plan in place to make sure these distributions are done accordingly will relieve some stress. Having a pension, IRA, and other retirement accounts will help broaden your retirement resources.

When to Retire?

As we begin to count down the days to retirement, many of us continue to worry about our financial outlook. Having to constantly worry about your finances is no position anyone wants to be in at the end of your career. This is why planning your retirement sooner rather than later is very important to make the process enjoyable and less stressful. Starting earlier will allow you to build up as many safety nets as possible. With that being said everyone’s situation is different so picking a specific age as a cookie cutter for everyone doesn’t always work. This is why you should be more focused on when you feel comfortable retiring rather than focusing on the age at which you are eligible for retirement benefits.

In part 2 of this blog I will cover how to make withdrawals from retirement accounts. This is another important topic when it comes to the retirement years for individuals. Managing and using your funds post retirement is crucial as there are age requirements and specific rules to follow when withdrawing from these different retirement accounts.