Pros/Cons of Retiring at 65 Verses Waiting
You need to weigh out the pros and cons of retiring at 65 verses waiting another year or two. Why?
- As of 2011, if you were born in 1946 or later, you are not yet Full Retirement Age (FRA) as determined by Social Security. (For those born in years 1943 - 1954, FRA is 66.) Learn more about how FRA affects your benefits in What is Full Retirement Age and How Does it Affect My Benefits?
- Your Social Security benefits continue to go up each year you wait to collect - even after you reach FRA. They accumulate something called delayed retirement credits. Learn how to use this in Using Delayed Retirement Credits to Increase Social Security Benefit.
- If you are married, making a smart choice about your Social Security benefits can provide a powerful form of life insurance for either one of you who may be long-lived. Read more about spousal benefits in Key Things to Know About the Social Security Spouse Benefit.
If you want to retire at 65, you are going to have one less thing to worry about than someone who retires earlier, because at 65 your Medicare benefits begin.
HOW TO DETERMINE IF YOU CAN RETIRE AT 65
To determine if and how to retire at 65, you’ll need to do a little homework to compare your retirement income to your retirement expenses.
1. MAKE A LIST OF YOUR SOURCES OF INCOME AVAILABLE AT 65This list should include things like:
- Social Security - Read 5 things to Know About Your Social Security Benefits
- Pensions - Read Pension Benefit Decisions
- Investment Income - Read 3 Types of Investment Income
- Rental Property Income - Read 3 Things to Consider Before You Buy Rental Property
- Potential earnings from part time work - Get ideas from Earning Extra Money
Seeking Help to Retire at 65
If you are not sure how to generate income from savings, you’ll need to learn or seek professional help.
In many cases a retirement planner can show you how to pay less in taxes during retirement, coordinate your Social Security benefits with other forms of income, show you how your savings can generate retirement income for you, and weigh out the pros and cons of investments like annuities, or strategies like the use of a reverse mortgage.
IRA Rollovers After 65
If you have money in a retirement plan at work, you’ll also need to determine if you should roll this money over to an IRA. It is much easier to manage your retirement savings if you consolidate all your retirement accounts into one IRA for you, and if you are married and your spouse has retirement plans, consolidate their retirement accounts into one IRA for them.
IRA accounts must be maintained under separate names so you cannot combine your retirement accounts with your spouse’s retirement accounts. You can make sure you name each other as the beneficiary of the accounts, so if something happens to your spouse, their retirement accounts belong to you and vice-versa.
Remember, Required Minimum Distributions Start at age 70 1/2
Keep in mind, the IRS requires you to take distributions from IRAs and other qualified retirement plans starting by your age 70 ½. Because of the way Social Security benefits are taxed, it may not make sense to wait until age 70 ½ to start taking these distributions. Expert advice as to how and when to start your various sources of retirement income can often save you money in taxes.
2. LIST ALL EXPECTED MONTHLY OR ANNUAL EXPENSES AT 65
Once you have outlined your sources of income in retirement, you’ll need to list all your expenses. Use the ideas and worksheet in How to Make a Retirement Budget to get started.
Be sure to include premiums you may pay for Medicare Part B, and any costs for supplemental health and prescription policies you have.
Now, compare your year-by-year expected income with your year-by-year retirement expenses. Will your income cover your expenses? If so, then retiring at age 65 may work. If not, you will need to find ways to live on less, or work a few years longer.
If you are within five years of retirement, check out 5 Steps You Must Take Within 5 Years of Retirement.