I am a big fan of taking the time to pause, take in a deep breath, and slow down. It helps to calm us, and more importantly to give us the ability to look at something anew.
That’s most important in our relationships, of course, be it family, friends, or coworkers. When you take the time to collect, calm, and refocus yourself, you are ready to re-engage in a more constructive way.
That same process can be helpful with managing your financial life. It’s easy to get so worked up, confused, or overwhelmed that it’s hard for you to make confident decisions.
I know for many of you, retirement planning seems difficult, or makes you so anxious you can’t deal.
I get it.
I ask you to take a deep breath and slow down. When you are ready to refocus, I want you to zero in on four key numbers–ages–that are the key to building a terrific retirement plan.
- 62: The age when you are allowed to start collecting your Social Security benefit. My advice: Don’t do it. If you can build a retirement strategy to delay starting, that’s going to be a smarter move. (More on this in a sec.) The problem with taking Social Security at age 62 is that you agree to a “reduced” benefit. It can be 30% less!
- 66-67: Okay, so I just told you to try to resist the temptation to begin collecting Social Security at age 62. So when should you start? The way Social Security works is that each of us has a Full Retirement Age—that’s the age where Social Security will pay you 100% of your earned benefit. Your FRA is based on the year you were born; it ranges between ages 66 and 67. If you want to start taking Social Security at your FRA that’s okay. But I have an even better suggestion. Keep reading.
- 70: Okay, we just discussed that at your FRA of 66/67 you are entitled to 100% of your Social Security benefit. But if you wait until age 70 you will be paid 124% of your FRA benefit. For someone with an FRA of 67, waiting three more years boosts your payout by 8% a year. Guaranteed. There is no investment out there that can deliver you a guaranteed 8% a year return. But Social Security will. That’s why I always recommend that the highest-earner in a household aim to wait until age 70 to collect Social Security.
- 85-88: I know some of you are thinking waiting to turn 70 before you start collecting your Social Security benefit is, well, nuts. I constantly get pushback on this. People think if they wait until 70 they will never collect as much before they die than if they start at age 62, or some time before their FRA.
You are missing the big picture.
You may be focused on dying. I am focused on the likelihood you will live a lot longer than you may think. A woman who is 65 today has a 50% chance of still being alive at 88. Think about that. Not a 5% chance. Or a 20% chance. But a 50% chance that you will still be alive at 88. (A 65-year-old man has a 50% chance of being alive at age 85.5). With those high odds that you may live into your 90s, your retirement plan should be focused on how to generate the most income for that long life.
Waiting to collect Social Security is one strategy. Working longer–say to age 70–is another good move, as it can make it easier to wait on Social Security, and delay making withdrawals from your IRAs and other retirement accounts. That will leave more for later.