How Much Do I Need To Retire At 62
Have you ever wondered, “How much do I need to retire at 62?” While the “full” retirement age is currently 67 for anyone born in or after 1960, there are any number of reasons you might choose to retire earlier from eagerness to jump-start your retirement or concerns about your health to the need to take care of family.While five years may not seem like a big difference in terms of retirement, there’s some important planning involved in determining whether you can afford to retire at 62 . Knowing you won’t outlive your savings after an early retirement is important but how do you figure out just how much money you’ll need?The answer can depend on a number of factors. It can be helpful to start by considering how your current savings measure up to the financial factors most likely to affect your retirement income needs.
Can You Delay Social Security
Many people say that they fear running out of money after they retire. Protect your future income by making a smart choice about when to begin taking Social Security. This program provides inflation-adjusted income for as long as you live, but all future increases are based on your starting benefit. If you wait until your full retirement age or later, you stand to earn more.
You do not need to start getting benefits as soon as you retire. If you choose to stop working at 62, that doesn’t mean you’ll have to start getting Social Security at 62. You will get a larger monthly payment by waiting until you are older before you collect.
You can also use strategies for married couples to get more out of your joint benefits. Working together to create a plan will help you get more money though time.
Married couples who choose wisely about how and when to collect benefits may jointly receive many thousands more than those who collect early. You can use a Social Security calculator to figure out your best options.
If you have enough saved, you may want to think about using your savings to cover expenses for a while after you retire. That will allow you to delay the start date of your Social Security. Doing so can lock in a higher income amount later, which will help protect you from outliving your money.
Can I Get Medicare Early If I Retire Early
If you retire earlier than age 65, you will not be eligible for Medicare. Although Medicare is often thought of as insurance for retired people, the Medicare age requirement is still 65. Some people continue to work past age 65 and have insurance coverage through their employer. Many people retire before they turn 65 and must purchase health insurance or are covered on their spouses insurance plan. Although you may be eligible for social security retirement benefits if you retire early, it does not change your age requirement for Medicare health insurance coverage.
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Prepare For The Unexpected
You dont want to run your retirement expenses so close to your budget that you risk financial ruin if some unexpected surprises occur.
If you plan things too closely, and you are wrong or forget to incorporate an expense, your retirement will not be what you thought it would be and youll lament your decision, says Sudit. Just like a home remodel, anticipate cost overruns and unexpected expenses.
Count on some of these expected unexpected expenses to crop up from time to time: home maintenance, car repairs or replacement, and of course always-rising medical expenses. But other expenses may really come out of nowhere, so its key to build a cushion in your budget.
Heres How Working After 62 Can Change Your Social Security Benefits
Continuing to work after age 62 can affect your level of Social Security retirement benefits, whether you are receiving benefits at the time or not. Knowing how continuing to work might change benefit levels can lead to better decisions about when to claim benefits and whether to continue working.
You can begin claiming Social Security retirement benefits as early as age 62, whether you are working or not. You know that the level of benefits increases for each year you wait to claim them through age 70. Theres no benefit for delaying claiming past age 70. In addition, the level of benefits might increase if you continue working after 62, whether you claim benefits at 62 or later.
Social Security retirement benefits are calculated using your 35 highest-earning years. If you dont have 35 years of earnings, youll be assigned an income of $0 for each of the missing years. After you turn 62, Social Security recalculates your benefits every year that you dont claim benefits. It will take your earnings for the latest year, add that to your record of lifetime earnings and select the 35 years with the highest inflation-adjusted earnings. Those are the only details of how benefits are calculated you need for this discussion.
When claim Social Security retirement benefits and continue to work, the effects are more complicated.
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Use Your Home As An Income Source
If you have a lot of equity in your home, it may be fairly easy to borrow against it. And so you may decide to take out a home equity loan to help pay your living expenses for a few years in the absence of collecting Social Security.
Of course, this strategy only works if you’re able to borrow at a low enough rate. But if that’s possible, then a loan, combined with your savings, could make it possible to wait on Social Security.
Another option worth considering is renting out a portion of your home for a few years and using your rental income to pay bills. This works especially well if you have a separate area of your home, like a finished basement, that allows for plenty of privacy.
What Age Can You Retire
The age at which you can retire and collect Social Security benefits and the age at which you should retire aren’t necessarily the same. While you become eligible for Social Security at age 62, you don’t actually qualify for your full monthly benefit amount until a few years later. For those born between 1943 and 1954, it doesn’t happen until age 66. For anyone born after that, the age increases in two-month increments is 66 plus two months) up to age 67 for anyone born in 1960 or later.
If you claim benefits at 62, you only get 75% of the full amount, which makes up for the fact that youll be getting checks for a longer period of time. The benefit for your spouse takes a hit as well. They will only get 35% of your full retirement amount, compared to 50% if you wait until at least 66.
Chances are that you’ll need a large nest egg to supplement your Social Security funds, especially if you hang it up very early. And the earlier you retire, the more you’ll need. Keep in mind, too, that you won’t be eligible for Medicare until you reach age 65, so you’ll almost certainly face steep out-of-pocket costs if you have to purchase health insurance on your own.
An individual applying for health insurance that complies with the Affordable Care Act pays an average of $456 per month in premiums. By contrast, in 2022, the standard Medicare Part B premium is $170.10 per month , and it gets you coverage with a relatively low deductible of $233 a year .
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You Want To Start A Business
Some people think of retirement as a time to relax, but you might see it as an opportunity to do things you couldnt do before, such as starting your own business. For example, you might have put off starting a business before because you were afraid you wouldnt be generating enough income. Social Security benefits could provide enough income to let you launch your business. And if your business is successful, the income it generates could be more than enough to offset the future reduction in benefits.
How Much Is Enough For Retirement
If that sounds like you, youre not alone. Many people have trouble saving enough within 40 years of working to support themselves for 30 or more years during retirement, and often the financial assistance provided by government programs is not enough to cover the gap. In order to increase streams of income, many senior homeowners consider reverse mortgage benefits as a means to retire more comfortably.
Seniors at least 62 years old who have considerable equity in their home and meet reverse mortgage eligibility may be able to tap into their home equity for usable cashwithout having to sell or vacate the property.
If youve asked yourself, How much do I need to retire? and found that your target savings and ideal income are out of reach, use our reverse mortgage calculator to see how much equity you may be able to access so you can start living The GoodLife in Retirement. When youre ready to improve your quality of life, contact one of our expert Reverse Mortgage Specialists who can explain if a reverse mortgage might be right for you.
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What If I Take Benefits Early
If you choose to receive your Social Security check up to 36 months before your full retirement age, be aware that your benefit is permanently reduced by five-ninths of 1% for each month.
If you start more than 36 months before your full retirement age, the benefit is further reduced by five-twelfths of 1% per month, for the rest of retirement.
For example, let’s assume that you stop working at age 62. If your full retirement age is 66 and 2 months you elect to start benefits at age 62, the reduced benefit calculation is based on 50 months. This means that the reduction for the first 36 months is 20% and 5.83% for the remaining 14 months. Overall, your benefits would be permanently reduced by 25.83%.
Reason #: Retire Early If You Have A Plan For Health Insurance
When you retire at 62, there are still 3 years left to wait before youll qualify for Medicare unless you qualify for disability. Youll need medical coverage to see you through until you turn 65.
Being healthy doesnt mean its OK to go without health coverage. If you can obtain a private policy to bridge the gap, then youre all set. If not, you might want to wait a bit longer to retire.
Here are a few ideas for how to afford healthcare before Medicare eligibility.
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Increasing The Eligibility Age For Social Security Pensions
Social Security faces a long-term financing problem. Many young workers believe the problem is so severe they may never receive a Social Security check. The most logical solution to Social Securitys financing problem is to trim promised benefits and increase payroll taxes moderately. A sensible way to reduce future benefits is to increase the early eligibility age and normal retirement age for retirement pensions. This reform is justified by the substantial increase in life spans that has occurred since Social Security was established in the 1930s. An increase in life spans, when the normal retirement age remains unchanged, is equivalent to a sizable increase in lifetime Social Security benefits.
Increasing the retirement age is unpopular with voters. Unfortunately, so are all other reforms that would restore Social Security to solvency, including tax hikes and cuts in the formula for calculating full pensions.
Insure But Also Take Good Care Of Your Health
The biggest thing to remember about early retirement, though, is to stay active and healthy, Purkat shares.
The worst thing you can do in retirement is sit around the house all day, He says. Be sure to exercise, stay involved in your community or even work a part-time job. These acts will all contribute to your overall health and wellbeing and can help keep your health care costs lower.
Studies have shown that staying physically active can also help fight off the onset of Alzheimers, the most common neurodegenerative disorder. This underscores the danger of a sedentary lifestyle.
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What If I Delay Taking My Benefits
If you retire sometime between your full retirement age and age 70, you typically earn a “delayed retirement” credit . For example, say you were born in 1955 and your full retirement age is 66 and 2 months. If you started your benefits at age 68, you would receive a credit of 8% per year multiplied by approximately two . This makes your benefit ~15% higher than the amount you would have received at age 66.
That higher baseline lasts for the rest of your retirement and serves as the basis for future increases linked to inflation. While it’s important to consider your personal circumstancesit’s not always possible to wait, particularly if you are in poor health or can’t afford to delaythe benefits of waiting can be significant.
If you decide to wait past age 65, you may still need to sign up for Medicare. In some circumstances your Medicare coverage may be delayed and cost more if you do not sign up at age 65.
Effect Of Late Retirement On Benefits
1.Represents Full Retirement Age based on DOB Jan. 2, 1955
2.PIA = The primary insurance amount is the basis for benefits that are paid to an individual
To review your situation, your annual Social Security statement will list your projected benefits at age 62, full retirement age, and age 70, assuming you continue to work and earn about the same amount until age 62, full retirement age, or age 70 before retiring. If you need a copy of your annual statement, you can request one from the Social Security Administration .
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Do You Have Enough To Retire At 62
If only withdrawing the possible growth in your accounts’ value doesn’t provide you enough to live on, you could instead start from the opposite direction, by calculating how much you’ll need to live on each year. Then you could work backwards to figure out how much more savings you’ll need to reach your annual income goal.
Youre Planning Your End
Your Social Security benefits stop paying at your death, so if you die prior to collecting benefits, youll have missed out on benefits entirely. You need to figure out how to maximize your Social Security income, instead. For example, say youre planning to wait until age 70 so you can claim the larger monthly benefit. If you die right before your 70th birthday, you wont receive any benefits. Its very difficult to predict how long youll live, especially if youre in good health now. However, if you are suffering from a terminal or serious illness, the increased monthly benefit for delaying Social Security might not be worth it.
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You’ll Have To Figure Out Healthcare
Many seniors sign up for Medicare at or around age 65, which is when eligibility kicks in. But if you decide to retire at 62, you won’t be allowed to enroll in Medicare for years. That means you’ll need to cover the cost of health insurance out of pocket, and that could prove expensive.
Even if you’re able to sign up for COBRA and retain your employer’s plan, COBRA is only supposed to last 18 months. So if you’re retiring at 62, you’ll still have a gap between when that coverage runs out and when Medicare eligibility begins.
Plus, COBRA is far from a bargain. In many cases, it’s even more expensive than buying a plan through healthcare.gov.
Tax Considerations For Retirement
Any money you’ve set aside in tax-deferred retirement accounts plans or traditional IRAs but not Roth IRAs) will be taxed as ordinary income any time you make a withdrawal. You’ll also need to take required minimum distributions each year once you reach age 70½ or age 72 . Again, RMDs do not apply to Roth IRAs however, with IRAs and their RMDs, you won’t necessarily get to choose how much money to access once you’re in your 70s.
Many retirees are also unaware that up to 85% of their Social Security benefits could be taxable, depending on their total annual retirement income. This is why it’s vital to calculate your tax burden in retirement so you’re not counting on money that you may actually owe the IRS.
The exact financial situation required to retire comfortably at 62 varies from person to person. Figuring out what might work for you means determining how much you have saved, then factoring in taxes, health care costs and the costs of waiting for Social Security. You might also consider speaking with a qualified financial adviser to help determine a retirement savings strategy that fits your overall financial goals.
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Tips On Early Retirement
- A financial advisor can offer valuable advice on how to arrange your finances so you can retire early. Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now. You can get started now here.
- Your Social Security benefit depends on the year you were born, annual income, marital status and age of retirement. SmartAssets Social Security benefit calculator takes all these factors into consideration to estimate your benefits, including inflation.