As you may or may not know I retired from my full-time job on February 1st of this year. I plan on focusing all my attention now on this blog and website. In the almost year before I actually retired, I did a lot of research; talked to some experts and made sure I had all my ducks in a row before I took the leap of faith. I really learned a lot during the process and thought I’d share it with you.
First of all, I don’t know about you but I had just always thought that you could retire at age 62 or 65, right? Nope, it’s not that simple at all! Even though we’ve paid into Social Security our entire adult working lives doesn’t mean you can just start getting it all back when you want to. In fact, it gets really complicated so while I’m sharing what I learned, be sure to consult with your own experts too before you take your leap.
Let me try to explain this point. While yes you can retire as early as age 62 and begin collecting Social Security Retirement benefits, the Social Security Administration has been slowly increasing the “normal” or “full retirement age” as they project life expectancy to lengthen. So, if you decide to retire at 62 – “early retirement” per Social Security Administration standards, then the monthly payments you’ll receive will be lower than if you waited until your “full retirement age” because the Social Security Administration figures that you’ll get them for a longer period of time.
For people born prior to 1938, the full retirement age is 65, while those of us born between 1938 and 1960 are on a graduated scale up to the age of 67. This is also subject to being revised by them at any time. My full retirement age is 66 so I assumed that I had to wait until my actual 66th birthday on the 28th of February to retire. This is not the case I found upon calling them. The Social Security Administration considers the 1st day of the month that you will turn your full retirement age as your start date. That fact saved me 4 weeks of working at a job where I was miserable so it was well worth the phone call! The other thing I found out on that call is that they do hold back a month so your benefits won’t be paid for that month. I’ll get my first one in March when my retirement date was February.
If I had or if you decide to take your retirement at age 62 and your full retirement age is 67 you’ll have the following reduction to your benefits:
- Age 63 is about 25% less
- Age 64 is about 20% less
- Age 65 is about 13.3% less
- Age 66 is about 6.7% less
Here is the chart the I took from the Social Security website to show your “full retirement age”:
|YEAR OF BIRTH||FULL RETIREMENT AGE
|1937 or earlier||65|
|1938||65 and 2 months|
|1939||65 and 4 months|
|1940||65 and 6 months|
|1941||65 and 8 months|
|1942||65 and 10 months|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
On the statements that we receive from the Social Security Administration every year it shows you what you’d get at 62, what you’d get at your full retirement age and what you’d get if you wait until age 70. Of course, what you’d get at age 70 is the largest amount. I considered working full-time until I was 70 to get the maximum amount but after discussing it with my tax professional I decided to go with my full retirement age. His reasoning was that most people who wait until age 70 don’t have enough years after that to receive all the benefits that they are due according to what they’ve paid in. That made sense to me since I’ve been paying in since I started working at age 16. I really don’t expect to live another 50 years after I reach age 70 as much as I might like to:).
Now let’s talk a little about how the amount of the benefits are figured. They are based on earnings average or “indexed” as they say over most of the worker’s lifetime. Your actual earnings are first adjusted to account for changes in the average wages since the year the earnings were recorded. The Social Security Administration calculates your average or “indexed earnings during the 35 years in which you earned the most money. They then apply a formula to those earnings to get your base benefit or what they call “primary insurance amount” or PIA. This PIA is the amount you’d receive at your full retirement age if you are eligible. You receive benefits based on your average annual earnings during 35 years that you made the most money. Clear as mud, right???? What I found in my case was that if I waited until the age of 70, the difference was only about $180 a month more so I went with my full retirement age.
Another thing that I learned about the process is that if you take your retirement before your full retirement age and decide to work a part time job or full time at another job to supplement your Social Security benefit, your Social Security benefits will be taxed as if they were regular earnings that you made. If you wait until your full retirement age, you can earn up to an extra $25,000 a year and not have your Social Security benefits taxed. For those of us who will need to supplement those benefits this is a great incentive to hang in there until wait until your full retirement age to retire!
Now let’s talk a little about what I learned about Medicare because when you do retire from a full time job that has medical benefits, you lose that coverage. You can and should apply for Medicare Part A when you turn 65 – even if you are still working and have medical benefits. If you’re still working, as I was, you don’t need to sign up for Part B until you aren’t going to be covered by your company’s plan. You have, I believe, 30 days to sign up but I started the process about 10 days before I planned to retire.
I also started looking months before for a Medicare Supplement Plan. I again, did a lot of research and comparisons since I do have a few prescriptions that are pricey. It was interesting how different companies priced their prescriptions. One company considered one of my prescriptions to be a Tier 4 at a cost of $95 a month while all the others considered it to be a tier 2 at $20. What I found out is that the actual cost from the pharmacy without using insurance for this one is only $18 so I took that one completely out of my comparisons and will pay the cash price for it.
I do highly recommend doing what I did and get all the information from all the different companies in your area and if you do take medications have them go over each one with you to get their pricing.
Since I waited until 2 weeks before I retired I was a little rushed in the process of getting the supplemental insurance. You have to be already signed up for Part B Medicare to get the supplement – which I had not known ahead of time. I ended up taking my Part B application directly to my local Social Security Office where they expedited it so it all came together as I needed it to do.
As I stated at the beginning of this post, this is my story and the facts that I found but be sure and do your own checking as all the laws and regulations can change anytime. https://www.ssa.gov/I do hope that this gave you some useful information though! If you thought any of it was valuable, please let me know in the comments below.