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How retirement age impacts Social Security and other benefits

How retirement age impacts Social Security and other benefits
As we age, most birthdays are just about getting another year older. But as we reach retirement, birthdays take on new meaning: various ages signify new options available to collect Social Security benefits and other retirement income.

65th birthday cake

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Significant income could be lost if you take benefits too soon or wait too long.  There are many distribution options available, especially for married couples. Therefore, careful planning and consideration should be taken well before you actually want to retire.

IRA distributions

At age 59 ½, you can start taking IRA distributions, which would be considered taxable income. However, the 10% penalty for early distributions does not apply after you’ve reached age 59 ½.

Social Security benefits

A very important aspect of deciding when to start taking Social Security benefits is that each age has a certain level of benefits available. If you take it early, at age 62, your monthly benefit is lower (by as much as 30%) than if you wait until full retirement age (FRA). Of course, if you can hold out until you reach age 70, your monthly benefit would currently be 132% of your normal benefit at FRA.

The age at which you reach FRA varies with anyone born after 1937. Those born between 1938-1942 reach FRA during various months between ages 65 and 66, those born between 1943-1954 reach FRA at 66, those born between 1955-1959 reach FRA during various months between ages 66 and 67, and those born in 1960 and later reach FRA at 67. Confused yet? We recommend you check out the Social Security Administration’s Retirement Planner for a helpful chart.

So, what do you need to consider when making the decision on withdrawing Social Security?  There are several factors, including life expectancy, employment, financial needs and, if married, spousal considerations. Obviously these will be different for everyone and should be discussed thoroughly with your advisor.

As mentioned above, married couples have several options for withdrawing Social Security benefits.  A few considerations include:

  • spousal income benefits resulting in a larger monthly payment;
  • benefits for a divorced spouse if the ex-spouse is still living; and
  • widow/widowers benefits after the first spouse dies

Medicare

Turning 65 is still a significant age.  Regardless of when you decide to actually retire or not, this is the age when you have to sign up for Medicare. If this date is missed, you could be without insurance for a period of time before you are eligible again to sign up for Medicare during an annual enrollment period and it will cost you more.

As you can see, there are many considerations and options available when it comes to your retirement age and Social Security and other retirement benefits. One of the most important things you can do for yourself is align your election strategy. Considerations need to be given to your income stream, investment accounts, and 401(k) benefits, and IRA funds, the magnitude of required minimum distributions at age 70 ½, and any mortgages or other liabilities.

You don’t have to make retirement decisions alone. Your WK advisor is available to assist you in assessing the available options.

Posted By Deb Harrington, CPA on 10-8-2015 | Topics: Articles,