Show Text size Have a question about saving for retirement or your personal financial situation? Whatever the question, Barron’s Retirement can try to help. Email , and we might look to financial pros for answers. *** Q: I’m planning to retire at 62, but I won’t collect Social Security until I’m 67. Will I still get increased benefits even though I hadn’t worked the last five years? The short answer is yes. Retirees who begin collecting Social Security at 62 instead of at the full retirement age (67 for those born in 1960 or later) can expect their monthly benefits to be 30% lower. So, delaying claiming until 67 will result in a larger monthly check. Working until age 67 also could increase your Social Security benefits, especially if you have a high salary or have gaps in your work history. Social Security benefits are calculated using your average indexed monthly earnings during the 35 years in which you earned the most money. Working fewer than 35 years results in a lower monthly benefit because you would have years that count as zero. Once you’ve hit the 35-year threshold, working until 67 could raise your monthly benefit by increasing the average amount you earned during your 35 best years. Newsletter Sign-up
RetirementBarron’s brings retirement planning and advice to you in a weekly wrap-up of our articles about preparing for life after work. However, the increase in benefits by working until 67 either to fill in gaps in work history or to maximize high earnings likely would be “nominal,” according to Ryan Shuchman, investment advisor at Cornerstone Financial Services. To illustrate this point, Shuchman considered a typical 62-year-old worker who made $85,000 last year and plans to collect Social Security at 67. If that employee works until 67 in order to meet the 35-year threshold, his monthly Social Security check likely would be about $140 higher, he says. But if that employee already has worked 35 years, then working until 67 likely would increase his monthly benefit by less than $90, he says. “If you’ve hit the 35-year threshold, I would say continuing to work has a nominal impact,” Shuchman says. Q: What’s a tax-efficient way to protect the holdings in my taxable investment account from inflation? Savers with a moderate risk tolerance should consider blue-chip stocks that offer qualified dividends or an exchange-traded fund made up of those companies, Shuchman says. Qualified dividends are subject to tax rates for long-term capital gains, while ordinary dividends are subject to regular income tax rates. Verizon (ticker: VZ) and Pfizer (PFE) are examples of companies that are “very healthy in terms of their financials and also provide that qualified dividend,” Shuchman says. Investors with a low risk tolerance might opt for a fixed index annuity, which pays the investor an interest rate tied to the performance of a specific market index such as the S&P 500. Fixed index annuities offer protection against the loss of principal, but in exchange for that guarantee, investment gains are limited. When seniors withdraw money from an annuity, their investment gains are taxed as regular income, but until that point, investments grow tax-deferred. “A fixed index annuity will provide some growth against inflation,” Shuchman says. “It will be a lower growth rate than a pure equities strategy, but it does have a principal guarantee.” Q: I’m 50, and I have 14 years remaining on a 15-year mortgage at a rate under 3%. Should I pay off my mortgage now or keep making payments, realizing that if inflation remains high, I can pay off my mortgage over time with cheaper dollars? I could then invest my current funds in conservative, high-yield stocks at about 5%. Continue to make your mortgage payments, taking advantage of that low interest rate, and keep the rest of your money invested, says Steven P. Azoury, principal of the financial-planning firm Azoury Financial. Over time, he says, you will indeed be repaying your lender with watered-down dollars, especially if inflation rates remain high. “At 3%, there’s no way I would pay off that mortgage,” he says. “A good mutual fund has probably averaged an 8% to 10% return over the last 10 years, so if I’m paying 3%, but I’m making 8% to 10%, I win.” Shuchman, of Cornerstone Financial Services, said clients frequently ask him some version of this question, and he gives them the same advice. If you have a low, fixed interest rate, then you probably shouldn’t pay off your mortgage early, he says. “There’s a strong emotional aspect to paying off that mortgage and being debt-free, but the reality is that you have to think about the opportunity cost of missing out on market growth,” he says. Write to The Little Q: Your Finance Questions, AnsweredIs it a good idea to collect Social Security at 62?Key takeaways. If you claim Social Security at age 62, rather than wait until your full retirement age (FRA), you can expect a 30% reduction in monthly benefits. For every year you delay claiming Social Security past your FRA up to age 70, you get an 8% increase in your benefit.
Why retiring at 62 is a good idea?Probably the biggest indicator that it's really ok to retire early is that your debts are paid off, or they're very close to it. Debt-free living, financial freedom, or whichever way you choose to refer it, means you've fulfilled all or most of your obligations, and you'll be under much less strain in the years ahead.
Is it better to collect Social Security at 62 or 67?You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.
What is the downside to taking Social Security at 62?The advantage of taking retirement benefits early is that you start to collect the money that you've been paying over to the government monthly since you started working. The downside to that, however, is that it causes a permanent reduction in your Social Security retirement benefit.
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What are the advantages of taking social security at age 62
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