| |
Early retirement is a phrase many Americans wish they could turn into a reality. While retiring in your 50s or early 60s sounds enticing, it typically requires years of planning to make sure you've accumulated enough retirement assets to last for 20 or 30 years or more. It's important to factor in how an early retirement could affect your Social Security benefits, options for health insurance, and the nest egg you plan to rely on for ongoing living expenses.
Social Security and Medicare
Those who collect Social Security at age 62, the earliest age when most retirees are eligible, face a permanent reduction in benefits. For example, if your full retirement age is 66, collecting benefits at age 62 will result in a 25% reduction in the monthly benefit you would have received by retiring at 66.1
Those born in 1960 or later will experience a permanent 30% benefit cut if they choose to begin collecting benefits at age 62 instead of their full retirement age of 67. In contrast, delaying benefits past full retirement age results in a higher benefit, with a maximum delayed retirement credit of 8% annually for those who were born in 1943 or later and wait until age 70 to retire.
Regardless of your age when you retire, Social Security is not likely to pay all of your living expenses. Social Security currently comprises 36% of the income of Americans aged 65 and older, with remaining income coming from employer-sponsored retirement plans, wages, and other sources.2
Finding health insurance is equally important if you plan to retire early. Eligibility for Medicare begins at age 65, and those who retire earlier typically must obtain health insurance on their own or through a former employer, which can cost thousands of dollars annually in premiums.
Saving and Budgeting
Early retirement typically requires a larger nest egg to finance living expenses over a longer period of time. Contributing as much as you can afford to qualified retirement accounts, such as an IRA or an employer-sponsored retirement plan, can help you build this nest egg.
But there are limits to how much you can save. For 2010, the maximum contribution to an IRA is $5,000 for those under age 50, $6,000 for those aged 50 and older. For those who contribute to a workplace-sponsored plan, such as a 401(k) or 403(b), the maximum contribution for 2010 is $16,500. Those aged 50 and older can contribute an additional $5,000.
Retiring early requires advance planning to make the situation work to your advantage. If you have the financial resources to do it, you may want to start the process at your earliest opportunity.
1 Source: www.ssa.gov.
2 Source: Fast Facts & Figures About Social Security, 2009.
© 2010 Standard & Poor's Financial Communications. All rights reserved.
©2010, Kelly Ruggles, Spokane, WA. Web site
Kelly C. Ruggles, Spokane, WA. is a fee-based financial planner located in Spokane.
Kelly C. Ruggles, Spokane, WA. President of American Reliance Group, Inc., a registered investment advisor.
Kelly Ruggles, Spokane, WA. is the author of "The Financial Playbook" for Retirement
Kelly C. Ruggles, Spokane, WA. Does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions
|
