You’ve been dreaming of the day for decades, and now it’s almost here. Sometime soon, you plan to retire. But choosing the precise day to call it quits can be a tricky decision. Make the wrong move, and you could pay a hefty financial price.
Fortunately, experts can help steer you away from making big retirement planning mistakes. Here are some suggestions from financial planners about the ideal time to leave your job — and other tips you can use to make the most out of your Social Security benefits.
Last updated: Dec. 15, 2020
Wait Until You Turn 70
Workers can begin claiming Social Security benefits early, at age 62. This will reduce their monthly benefit amounts, however, with the reduction based on the number of months they receive benefits before reaching full retirement age.
Employees who retire at age 66 are eligible for 100% of their Social Security benefits, but they can earn even more if they hold off on claiming. According to the Social Security Administration, many workers who put off collecting Social Security can receive up to 132% of their monthly benefit. However, that bonus stops increasing at age 70.
“If you turn age 70 at any point (during the next year), then claim Social Security,” Jason Silverberg, vice president of financial planning at Financial Advantage Associates in Rockville, Md. “You will not receive any monetary benefit for delaying it further.”
Do Your Research
Before retiring, have a solid grasp of how much you will spend each year. Then, develop strategies for using investment income and other sources to supplement pension and Social Security benefits. Think long and hard about how you will spend your days well before putting in your two weeks’ notice and leaving the workforce.
Anyone considering retirement soon might want to try semi-retirement first and explore fulfilling activities before calling it quits for good, said Kim E. Jones, a certified financial planner with Jones Strategic Financial Planning, which has locations in Broomfield, Colo., and Denver.
“It’s a good time to retire … if you feel ready to leave your job and if you have done a thorough financial analysis as to your ability to not outlive your money,” said Jones. “Deciding to retire should not be a ‘wing it’ decision.”
Move Somewhere That Doesn’t Tax Benefits
One easy way to boost your Social Security income is to move to one of the best places to retire. And there are 37 states in the U.S. that do not tax Social Security income, making them certainly the best places moneywise.
In addition, there are nine states that don’t have state income tax, which would be a nice break for retirees. That said, do your research on which state is best for you, because some that don’t tax benefits might take a bigger bite out of your other retirement income streams.
Don’t Stop Working
For an increasing number of older Americans, retiring from one career doesn’t necessarily mean leaving the workforce. Some might also choose to stay with their current employers even after they begin collecting Social Security benefits.
In either case, Silverberg advises older clients who still earn a paycheck to hold off on claiming Social Security at least until they turn 66. Before that age — the current full retirement age under Social Security Administration rules for most considering retirement — you will be penalized if you earn more than $17,040 in 2018.
“So, Social Security will withhold $1 of benefits for every $2 earned above that amount if you claim before your 66th birthday,” Silverberg said.
Consider Your Job Start Date
Employees who work for the government and other employers offering a defined benefit pension should confirm their initial dates of service with the human resources department before scheduling their last days on the job, said Silverberg.
Silverberg advises clients to consider retiring on the date that follows the anniversary of their first day on the job. “This will give you one more full year of service credit toward your pension calculation without working beyond that date without credits,” he said.
Some pension plans also factor in an employee’s age when calculating eligibility for retirement and the monthly benefit amount. So, educate yourself on your company’s specific retirement rules.
Avoid a Required Minimum Distribution
Beginning at age 70.5, you are required to take a minimum distribution from retirement accounts such as 401(k) plans and traditional IRAs. But if you work just a few days into the new year, you will not have to take a minimum distribution of the funds in the retirement account associated with your current employer.
“For the right person, a good time to retire … is just a few days into the new year,” said Glenda K. Moehlenpah, a certified financial planner and investment advisor with Financial Bridges in Poway, Calif. “I have a client over age 70.5 who was planning on retiring on Dec. 31, and I convinced them to wait a week to delay the RMD from the current employer’s 401(k) plan.”
Look For a Hidden Windfall
You might not know that if you’re divorced, you’re eligible for half of your ex-spouse’s full retirement amount, as long as he starts taking benefits at his full retirement age. You can continue to work and save even more for retirement as you’re collecting. Your claiming your ex’s benefits won’t affect him at all, either — he would never even know you’re receiving a distribution.
File and Suspend If You’re Single
When you’re single, you don’t need to worry about survivor benefits — your benefits will end when they do. If you’re in good health, however, and want to put off taking your benefits so you can get more money, still file when you turn 66 — and ask Social Security to suspend your benefits. As a result, you can collect all of the benefits that accumulate after you file your claim, which would provide you with a significant cash reserve.
Don’t Live in These States
A few states are known for not being retiree-friendly. They typically collect high income, sales and Social Security taxes. Connecticut, Kansas and Minnesota are particularly tax-unfriendly for retirees, according to Kiplinger.
Seek Good Advice
You don’t have to do your financial planning alone. You can access a number of free, online calculators to help you, like the one AARP offers. When you reach retirement age you have a lot of important life decisions to make, and it might pay to seek professional help to ensure you’re on the right track. Make sure you research a wide variety of financial planners — and read others’ reviews of them — before you sign on the dotted line.
Push For a Raise
The maximum amount of salary that Social Security considers subject to the payroll tax is currently $128,700 per year, which is the same amount of earnings it will credit toward your benefit. One way to maximize your benefit is to earn the maximum income throughout your career. Yes, that’s easier said than done, of course, but make sure you push for raises at your job and make the most money you possibly can.
Don’t Make Too Much Money in Retirement
When you’re younger than your full retirement age and want to collect benefits, you can earn up to $17,040 (2018 figure) before you lose $1 of benefits for every $2 you earn above the limit. So to maximize your benefits, make sure you don’t earn more. Keep in mind, however, that once you turn your full retirement age there is no penalty for working.
Another great way to maximize your Social Security benefits is to stay healthy because you’ll be able to actually collect them. All is lost if you die the day after you retire. It literally pays to stay healthy — so eat right, exercise frequently and schedule a checkup annually.
Work at Least 35 Years
Social Security calculates your benefit by figuring your average indexed monthly earnings during the 35 years in which you earned the most. Clearly, working for at least 35 years is a good way to maximize your benefit. That might seem like a long time, but let’s say you didn’t start your career until you were 31. You could still work 35 years and claim benefits at 65.
Decide Whether To Claim a Spousal Benefit
If you and your spouse worked but he made a lot more than you, consider claiming the spousal benefit instead of taking your benefit — it might be more. To help you decide what’s best, the Social Security Administration has a calculator you can use to figure out your spousal benefit. And two other calculators, Social Security Choices and Maximize My Social Security, can help you figure out the best way to take Social Security payments for a couple.
Claim a Spousal Benefit
After using a calculator to figure out the best way to deal with benefits as a couple, you might decide to claim the spousal benefit. For example, if your spouse paid into Social Security for at least 10 years — but you didn’t, or your earnings were less than his — you can claim a spousal benefit. And the amount could be as much as half of what your spouse is entitled to at full retirement age. Remember, however, that you can claim the spousal benefit only if your spouse has already filed for a retirement or disability benefit.
Don’t Claim If You’re Still Working
Try to hold out on claiming your benefits if you can possibly get by on what you’re making. But if you’re still working and need the Social Security benefits to cover your expenses, note that a portion of your monthly benefit will be withheld on earnings over $17,040.
Pay Off Debts
Don’t take the chance that your Social Security check might be garnished. Federal tax, child support or alimony and federal student loan debts are eligible for garnishment. Pay them off before you retire so you can keep your whole check.
Check For Errors
Review your Social Security statement carefully to ensure your income is reported correctly. Because your Social Security benefits amount is based on how much you earned, it is essential you get credit for all the money you’ve earned so that your benefits checks will be the maximum amount. Take steps immediately to correct any errors you spot on your earnings record.
Collect Benefits for Minors
When you start collecting benefits and have any unmarried dependent children 18 or younger, they can receive benefits as well. The SSA classifies acceptable dependents as biological, adopted, step- and grandchildren. In addition, any children who were disabled before they reached 22 and full-time, high school students from 18 to 19 years old are eligible.
Create a Budget
Because you’ll be living on a fixed income, it’s crucial to create a budget that you can stick to. Make sure you include your bills, housing costs, Medicare premiums, taxes and food and entertainment costs. Try to save for an emergency fund, too, so if the unexpected happens it won’t affect the money you depend on to live.
Being a frugal shopper takes time and research. As a retiree, use your newfound free time to bargain hunt, comparison shop and negotiate for better prices. Consider taking on some of the jobs you used to pay others to do, such as gardening. And always remember to ask for a senior discount, even if it’s not publicized.
Why keep a big house that requires a lot of maintenance? When you retire, consider downsizing to a smaller home — or renting. Renting allows you to kiss maintenance, and its associated costs, goodbye. Renting also opens up the possibility of getting closer to services and finding a place with age-friendly features, like no stairs.
Get a Roommate
You don’t have to shoulder the entire financial burden yourself. Instead, consider finding a roommate. Not only would that cut your expenses in half, it would provide you with some company. Just make sure you pick someone you think you can live with in the long term.
Don’t Retire in the Middle of the Year
Silverberg recommends that retirees have access to cash reserves to cover three to five years of retirement expenses. That way, they won’t need to pull money out of investments such as stocks during a downturn. Another alternative is to work part-time from home.
Some people without access to ample cash reserves might plan to pull money from retirement accounts soon after stopping work, however. For such workers, the best time to retire might be at the very beginning or very end of the year, Silverberg said.
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Barri Segal contributed to the reporting for this article.