Retirement Planning and Social Security Countdown
October 1, 2009 by Mr. GoTo
Filed under Retirement Planning
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?
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I really enjoy your blog and the relevancy of the things you write about. Although I’m only 50, retirement planning is high on my list of interests and my goal is to retire from f/t work at 60, just 10 years from now.
seeing as how i just got laid off from my job, my longtime plans do look somewhat questionable, but that’s my target, nonetheless.
Dawn: Glad you are enjoying it and hope that you will participate with your own thoughts and ideas. Sorry about your employment status and hope it changes soon. I have a number of resources on this blog that may be helpful. Look under the “Careers/Jobs” category. Thanks for being a reader.
Mark
Lots of people I meet say that even though it’s not enough to live on for them, they’ll still take social security on the first day they can get it.
i thought the spousal retirement benefit is capped at 50% of your benefit at FRA(adjusted for inflation) if she has reached her own FRA
Alan: You are correct – my calculation was off slightly. However, her survivor benefit will be based on my delayed credits for waiting until age 70.
I am 18 months younger than my husband. My husband will be 66 in 2013 and I will be 64. Can I file and suspend in 2013 and have my husband collect a spousal benefit on my benefit for four years (until he turns 70 at which time he will file and collect his own SS?
Once I turn 66 in 2015, can I apply for a spousal benefit with my husband and defer collecting any Social Security benfits until I turn 70?
Mary Ann Runaldue
Mary: You can file and suspend only when you reach full retirement age which for you will be at age 66. As for your second question, when you have reached full retirement age and are eligible for a spouse’s benefit or your own retirement benefit, you can choose to receive only the spouse’s benefit now and delay receiving retirement benefits until a later date.
Both my husband and I have worked full time for over 40 years so we are both eligible for SS at the highest levels. My husband was born in November, 1947 and I was born in April, 1949. Please tell me if the following is the best strategy to maximize our benefits….
In November, 2013, husband is 66 so he files and suspends. Wife (age 64) applies for spousal benefit. This would stay in effect for 48 months until the husband reaches age 70 (november 2017). Husband then cancels the suspension and collects full SS benefits.
Wife contines to receive the spousal benefit until April 2019 when the wife reaches age 70 and files for full SS benefits.
I think I finally understand how to best manage this….but I would appreciate your review and comment.
I think I got the above strategy a bit wrong. lets assume my husband’s SS benefit may be a bit higher than mine…..
November 2013, husband is 66. Wife (age 64) files for SS and suspends. Husband then applies for spousal benefit.
April, 2015, wife is 66> Husband files for SS and suspends. Wife then files for spousal benefit.
November 2017, husband turns 70 and begins to collect full SS benefits
Wife continues to collect spousal benefit, based upon husband’s highest level of benefits
April, 2019, wife turns 70 and files for maximum SS benefits.
Please let me know if this is the best strategy. Thank you.
I have a question about the annual statements they send you from Social Security. Mine says my benefits will be about $1300/month at age 62, which is 10 years from now. But since SS, on average, has a 2.5% cost of living increase every year, wouldn’t they increase my benefits by that much each year for the next 10 years until I retire? Surely, they would figure in cost of living increases between now and then or is that already figured into the $1300/month calculation? Thanks, Cynthia
Cynthia: The benefit estimates are provided in today’s dollars because the cost of living adjustments are so unpredictable. So, unless the law is changed, you will be receiving $1300 in today’s dollars at age 62. The actual dollar amount will depend on COLA over the next ten years.