Most of us start thinking about retirement fairly early on in our working career. As we get closer to retirement age, we need to make a number of important decisions about our retirement. At what age we should begin accepting Social Security retirement benefits is one of those decisions. Before you decide to accept your retirement benefits early, an Oklahoma City retirement planning attorney at Parman & Easterday explains the downside of doing so.
Understanding the Social Security Retirement System
The Social Security Retirement system has been around since the 1930s. To qualify for benefits you must accumulate credits based on your earnings over the course of your working years. The amount you must earn to accumulate a credit has increased over the years with inflation. For example, for 2019, you get one credit for every $1,360 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, the latest is age 70, and 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 choosing 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 says 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 being able to afford retirement would improve their chances if they waited until age 70 to collect benefits. The reason for this is simple to understand. Under the Social Security retirement system, 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 taking your benefits up to age 70. As of 2019, the average retirement benefit amount is $17,640 per year. Using that figure, waiting a single year would increase your benefits by $1,411 per year and waiting three years would increase them by $4,234 a year. If you continue to work and earn income while waiting to retire, the extra income also adds to your retirement nest egg, compounding the benefits of waiting.
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, you need to 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. 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 and your retirement planning attorney to ensure you understand the financial consequences of the decision you make.
Contact an Oklahoma City Retirement Planning Attorneys
For additional information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about retirement planning, contact an experienced Oklahoma City retirement planning attorney at Parman & Easterday by calling 405-843-6100 to schedule your appointment today.