If you are close to retirement age, you are probably counting down the time until you get there. Deciding exactly when you get there, however, is a decision you must make first. Before you make that decision, it is important for you to fully understand the financial cost you will pay if you elect to take an early retirement by starting your Social Security retirement benefits sooner rather than later. Toward that end, an Indianapolis elder law attorney at Frank & Kraft explains the cost of early retirement.
Social Security Retirement Benefits
The Social Security Retirement system has been around since the 1930s. To qualify for benefits you must accumulate credits that are based on your earnings over the course of your working years. The amount you need to earn to accumulate a credit has increased over the years to keep up 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 and the latest is age 70; however, you may choose to begin anywhere in that eight year span.
How Much Are You Losing If You Retire Early?
Tempting as it may be to start collecting your benefits early, you will pay a hefty price for doing so. 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 they chose 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 goes on to say 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 affording retirement would improve their chances if they waited until age 70 to collect benefits.
The reason for this is fairly simple to understand. The way the Social Security retirement system is set up, 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 the start of 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 also continue to work and earn income while you are waiting to retire that extra income also adds to your retirement nest egg, compounding the benefits of waiting.
Having a clear understanding of how the age you start collecting retirement benefits will impact your overall financial situation throughout your retirement years is crucial to a well thought out retirement plan. For some retirees it is truly necessary to start accepting benefits early; however, for those who can manage to wait the benefits of doing so will clearly be felt for the remainder of your life.
Contact an Indianapolis Elder Law Attorney
For more information, please join us for an upcoming FREE seminar. If you have additional elder law related questions, contact an experienced Indianapolis elder law attorney at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.