I received my annual Social Security Statement last month. I have written in the past about how I review my Social Security Statement. Each year this task takes on more significance because now I am only three years from being eligible for retirement benefits, if I were to choose to claim them at age 62. That is not part of my plan because of the permanent loss in benefits that I would experience. But there were a few things that were extra special associated with this year’s review.
Earlier this week I met with a long-time client who has also become a good friend. He is doing a very good job of using his financial resources to do the things that he wants to do while trying to reject those tasks (or pass them on to others) that are less pleasant.
Finally, I also had a visit this week from a good friend from high school. We talked quite a bit about our plans for the future. Finances obviously are playing a big role in dictating when those plans can fully commence. I enjoyed spending time with him and really want the freedom to do more of that, on my own schedule.
All of these recent events caused me to pull out that Social Security Statement again and to do some more work on our retirement budget planner (part of my Failsafe Retirement System that I wrote about last week.) There is going to be an auction of 10-year TIPS on Monday. I think I am going to buy some of them to put into our retirement income plan. I will use existing funds in my 401(k) plan to do that.
The Social Security Administration included a pamphlet with my statement called “Thinking of Retiring?” This pamphlet referenced links to some other retirement planning resources. One of those links took me to a government published planning document that reminded me of the some of the basic retirement planning countdown milestones. Most if not all of these planning steps are well-known but it never hurts to be reminded of what they are and to have them stare you in the face all at once.
Here is the retirement planning countdown:
Age 50: You may now take advantage of increased catch-up contributions to 401(k), IRA, and other qualified retirement plans.
Age 59 1/2: You are now able to make withdrawals from your 401(k) or IRA without the early withdrawal 10% tax penalty. Don’t do it if you can help it!
Age 62: You may begin receiving Social Security retirement benefits. Please try to avoid this, because claiming benefits at age 62 will cause a 25% permanent reduction in benefits compared to waiting until your full retirement age.
Age 65: You are now eligible for Medicare, although you should sign up three months before you turn 65 to insure that you get everything you are entitled to.
Age 66: For most baby boomers, this is your “full retirement age” for Social Security benefits. If you claim benefits at this age, you will still give up 8% annual increases in benefits compared to waiting until age 70.
Age 70: This is the age at which your Social Security retirement benefit can no longer increase, except for any cost-of-living increases. My projected benefit (in today’s dollars) at age 70 is $3,239/month. If I were to claim benefits at age 62 instead, my benefit would be only $1,774/month. That’s a huge difference. Our “consumption smoothing” retirement plan is, if necessary, to spend more of our retirement assets early so that we can wait until I turn age 70 to claim Social Security. Waiting until full retirement age will also maximize my wife’s spousal benefit as well, giving us combined Social Security income at my age 70 of approximately $4500.
Age 70 1/2: This is when required minimum distributions from most qualified retirement plans will kick-in.
How is your retirement countdown progressing?