Most of us start thinking about retirement early on in our working career. As we get closer to retirement age, several important decisions must be made related to our retirement. What age to begin accepting Social Security retirement benefits is one of those decisions. Before you decide to start accepting your retirement benefits early, a North Andover estate planning attorney at DeBruyckere Law Offices explains the downside of doing so.
The Social Security Retirement System
The Social Security Retirement system has been around since the 1930s. To qualify for benefits you must accumulate credits that are based on your earnings over the course of your working years. The amount you need to earn to accumulate a credit has increased over the years to keep up with inflation. For example, for 2020, you get one credit for every $1,410 you earn, up to a limit of four credits per year. Once a credit is earned it remains on your record forever. If you were born after 1929, you need 40 credits in order to receive Social Security retirement benefits. The earliest you can start receiving payouts from Social Security Retirement is age 62 and the latest is age 70; however, you may choose to begin anywhere in that eight-year span.
The Financial Cost of Retiring Early
While it may be tempting to retire as early as possible and put your working years behind you, doing so could cost you a small fortune. According to a recent report released by United Income, the average household loses an average of $111,000 by retiring early. Moreover, the average Social Security recipient would receive nine percent more income in retirement if they chose to retire at the right time instead of as early as possible.
Currently, over 70 percent of retirees choose to retire prior to age 64, and only four percent wait until age 70 to start collecting Social Security retirement benefits. The report goes on to say that “about 57 percent of retirees would build more wealth through their life if they waited to claim until they were 70 years old.” Furthermore, 21 percent of those at risk of not affording retirement would improve their chances if they waited until age 70 to collect benefits. The reason for this is fairly simple to understand. The way the Social Security retirement system is set up, your monthly benefit amount could be reduced by as much as 25 percent if you start collecting your retirement benefits early, and will remain at that reduced rate for the rest of your life. Conversely, your monthly benefits will increase 8 percent for every year that you delay the start of your benefits up to age 70.
The Importance of Retirement Planning
Ultimately, you must weigh the pros and cons of retiring early or waiting until you are a few years older to officially retire. To make that decision, however, it is crucial that you understand how the age you start collecting retirement benefits will impact your overall financial situation. For some retirees it is necessary to start accepting benefits early; however, for those who can wait a few extra years the reward will be a more comfortable retirement. Be sure to discuss your options with your financial advisor as well as your retirement planning attorney to ensure that you understand the financial consequences of the decision you make.
Contact a North Andover Estate Planning Attorney
If you have additional questions or concerns, please contact a North Andover estate planning attorney at DeBruyckere Law Offices by calling our Massachusetts office (978) 969-0331, or our New Hampshire office at (603) 894-4141 to learn more or visit our website at http://dadlawoffices.com .
Both your estate plan and your retirement plan can impact your assets and your financial security during your Golden Years. As such, it is imperative that they work together in harmony.
Yes. If you continue to work and earn income while you are waiting to retire that extra income also adds to your retirement nest egg, compounding the benefits of waiting.
You can use the retirement benefits estimator on the Social Security website to get an idea of what your monthly retirement benefits will be.
- Blended Family Estate Planning - May 19, 2022
- What You Need to Know about Last-Minute Medicaid Planning - May 17, 2022
- Understanding Your Life Insurance Options - May 12, 2022
