Retirement Age

Last month, 40,000 people did an Internet search on the phrase retirement age. I suspect that they look for information on one of these topics:

• Retirement age for the purpose of collecting Social Security
• Retirement age for Medicare coverage
• Retirement age to receive a company or public sector pension
• Retirement age when they can afford to retire

I provide details on all of these topics as well as the typical retirement age in different professions.

Retirement Age for Collecting Social Security Benefits

In general, you can file for Social Security benefits as early as age 62 and receive benefits (widows and widowers can register as soon as age 60). However, it is best to delay filing for Social Security benefits as long as you can until age 70.

Here's why. Social Security considers age 66 to be your full retirement age for those born from 1943-1954. So if you begin your benefits early, say at age 62, you will get 25% less per month for the rest of your life than if you wait until age 66. And if you delay your benefits further to age 70, you earn an 8% increase for each year of delay.

Let's look at an example. Your monthly Social Security benefit at age 66, your full retirement age, is $1000 per month. If you start at age 62 and claim early benefits, you will get only $750 per month. However,  if you wait until age 70 to collect your benefit. you will get $1320 per month. Remember that these monthly benefits are for life (indexed for inflation) so your Social Security start date for payments can mean a huge difference in lifetime income.

For those born after 1954, the full retirement age is greater than 66:

The Double Benefit to Delay Social Security Benefits

The more time you delay (until age 70) the start of Social Security benefits and continue to work, you receive an extra bump in your payment.  Your Social Security benefit is based on your highest 35 years of income.  So if your annual income increases the longer you work, it is also useful to delay retiring.  This alone will generate a small increase in your monthly Social Security benefit.  However, when combined with the above aspect of delayed credits, you get a multiplying effect.

In addition to the above double benefit of working longer, you get the gradually increasing cost of living adjustments on top of a higher starting monthly payment.  It's a super triple whammy.

Some great online resources about your Social Security payment can be found at the Social Security website https://www.ssa.gov, and you can use their excellent Social Security calculator.

Retirement Age for Collecting Medicare

Your Medicare benefit starts at age 65. It is important to file for this benefit 90 days before your 65th birthday. Most Americans are eligible to receive this benefit. Here are the eligibility criteria:

Medicare Part A is available for people age 65 or older Medicare. Part A (Hospital Insurance) is free for most people if you are age 65 or older and you or your spouse worked and paid Medicare taxes for at least ten years. You can get Part A at age 65 without having to pay premiums if:

• You are receiving retirement benefits from Social Security or the Railroad Retirement Board
• You are eligible to receive Social Security or Railroad benefits, but you have not yet filed for them
• You or your spouse had Medicare-covered government employment

You can find the Medicare eligibility tool here.

Retirement Age to Collect a Company Pension

Obviously, every company is different from another and may have different rules about when you can retire and be eligible for the company pension. Even though every company differs, there are some common threads when pension plans are compared.

Most plans base your ability to get pension benefits on a combination of your age and the number of years you worked at the company.

Not until you reach retirement age. Typically that's 65, though many pension plans allow you to start collecting early retirement benefits as early as age 55. If you decide to start receiving benefits before you reach full retirement age, the size of your monthly payout will be less than it would have been if you'd waited.

Here's an excerpt from the IBM Pension Plan summary, which is a good example of a typical company pension:

• The normal retirement age is defined as the later of age 65 or the completion of one year of service
• Participants earned points as follows: 0.16 base points each year until a 4.25 base point cap was reached, and 0.03 excess points each year until a 0.75 excess point cap was reached.
• The total point value is converted to an annuity at the benefit commencement date based on pre-determined annuity conversion factors.
• A participant may receive his or her benefit immediately following the termination of employment or may defer benefit payments until anytime between early retirement age and normal retirement age.
• Early retirement age is defined as:
  • Any age with 30 years of service;
  • Age 55 with 15 years of service; or
  • Age 62 with five years of service.
• Under the Pension Credit Formula, a participant who terminates employment and whose pension benefit commences before his or her normal retirement age will receive smaller monthly annuity payments than if his or her benefit commences at normal retirement age.

So very much like Social Security, company pension plans are based on how much people earn during their working years and the age at which benefits begin.

Retirement Age to Collect a Public Sector Pensions

While most large companies have done away with their pension plans in favor of 401k plans, cities, states and school districts may be locked into offering a pension by law.  A common and big group of persons receiving pensions are retired teachers.

Here's a quick summary of the California State Teachers Retirement Pension:

Your CalSTRS retirement benefit is a defined benefit pension. With five years of service credit, you’re eligible for a guaranteed lifetime retirement benefit based on a formula set by law:

Service Credit x Age Factor x Final Compensation = Retirement Benefit

While retirement age is considered age 60 for this pension plan, one can retire at age 50 with 30 years of service.  The plan is quite generous as one who spent their entire working career under this system retires with more than 90% of their highest pay.

It is common for public sector pension plans to provide more generous benefits than private-sector plants.  Public-sector employees such as state and local workers, teachers, police, and firefighting professionals often earn lower current pay than if employed in the private sector.  Consequently, they are often rewarded with generous pension benefits.  Additionally, these groups have strong unions and political clout which helps them negotiate generous retirement benefits.

Retirement Age Based on Available Assets and Income

Your retirement age depends on many factors such as:

• health -ability to continue working
• interest in your job/career
• family responsibilities (e.g. long-term care for a family member)
• MOST importantly-- your financial resources

An executive living in San Francisco accustomed to the country club lifestyle will need much more money than a person living a modest lifestyle in a small Alabama town.

Those who are not mathematically inclined may want to leave these retirement planning calculations to a financial advisor. Others can use an online retirement calculator to determine the resources or income needed to retire.  Many of the large mutual fund companies such as Fidelity and T. Rowe Price have robust and free online calculators.  Note that these tools often use different assumptions so you may get different answers from different calculators.  We suggest you use at least three and take an average of the savings or income needed to retire.

Many of the large mutual fund companies such as Fidelity and T. Rowe Price have robust and free online calculators.  Note that these tools often use different assumptions so you may get different answers from different calculators.  We suggest you use at least three and take an average of the savings or income needed to retire.

When converting your financial assets into income, a good starting rule is that 4% of your savings and investments can be withdrawn each year and not be exhausted during your lifetime.  In other words, $500,000 of savings and investments translates into $20,000 a year of income (4% x $500,000).  Add any pensions and Social Security and determine if you hit your required number.

Let's consider a very simple example of the logic to determine financial adequacy.

Step #1 Calculate how much you need by summing your rent/mortgage payments, utilities, food costs, entertainment costs, etc.

Step #2 From the total you need in step #1, divide by .8 in order to determine how much you need before income taxes.  I have used .8 only as an example for a person who has an average tax rate of 20% (1-20%=80% or .8).  For guidance on what number to use as the divisor, ask your accountant to calculate your average tax rate. Alternatively, you can do this by dividing the tax you paid on your most recent tax returns (federal and State) and dividing by your total income.

Step #3 Now that we know how much you need to pay your expenses, let's see how much you have. Add up all sources of automatic income in retirement: social security benefits, pension income, etc. Add to that 4% of your total investment assets (401k, IRA, stocks, bonds, mutual funds, real estate, etc).

Step #4 Compare the income you need from step#2 and the income you have from step #4.  This is how you know if you have enough for your planned retirement.  Alternatively, you may find that you do not have enough.  To retire, you may first need to work additional months or years, use assets you had not considered (e.g. home equity) or you need to reduce your living expenses in retirement.

Frequently Asked Questions about Retirement Age

Can I work and receive Social Security?

You can work and also receive Social Security benefits but there are income limits.  If you are less than full retirement age (e.g. age 66) and make more than the yearly earnings limit (see limits below), the government will reduce your benefit. Starting with the month you reach full retirement age, the government will not reduce your benefits regardless of how much you earn.

Here are the limits on how much you can earn and still receive Social Security benefits without reduction:

• If you are under full retirement age for the entire year, you lose $1 from your benefit payments for every $2 you earn above the annual limit.  For 2017 that limit is $16,920.

• In the year you reach full retirement age, you lose $1 in benefits for every $3 you earn above a higher limit (only earnings before the month you reach your full retirement age are counted). If you will reach full retirement age in 2017, the limit on your earnings for the months before full retirement age is $44,880.
• Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.

Because income or dividends that you receive on retirement age savings are unearned income, there is no limit on the amount you receive as it will not affect your social security benefit.

How do I receive part or all of my spouses Social Security Benefit?

As a general rule, you can only get benefits based on your spouse's earnings record if your spouse has also filed to receive benefits.

At full retirement age (66), you can get 50% of your spouse's Social Security benefit.  You can claim this benefit as early as age 62, but you will get a reduced amount, for life.  However, if you were born before January 2, 1954, you have the option to switch to your own benefit, if higher, at a later date.

Divorced

If you are divorced, but your marriage lasted 10 years or longer, you can receive benefits on your ex-spouse's record if:

• You are unmarried
• You are age 62 or older
• Your ex-spouse is entitled to Social Security retirement or disability benefits and
• The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse's work

If your ex-spouse has not applied for retirement benefits but can qualify for them, you can receive benefits on their record if you have been divorced for at least two years.

Widow or Widower

At full retirement age, a widow or widower can opt to receive 100% of the deceased's benefit.  You can file as early as age 60, but the benefit will be reduced.

When a widow or widower remarries after they reach age 60, the remarriage will not affect their eligibility for survivors benefits.  If a widow, widower or surviving divorced spouse remarries before they reach age 60, they cannot receive benefits as a surviving spouse while they're married.

Which Occupations Have the Lowest Retirement Age?

We have prepared this brief slide show for you.

How to Prosper and Thrive In Retirement

For those already retired seeking to improve their finances

The 4 most important issues for any retiree and a quick plan to address each

The overlooked annuitization of assets to make your money go farther and reduce risk

An easy way to save money on health coverage

You don’t need to be rich to plan your estate like this

A few simple lessons can reduce stress and bring more joy in your retirement year. Stop worrying and learn the simple

actions to take.