Thinking About Retiring At 62? If So, Read This First

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You're coming up on 62 years old, you've worked hard and paid Social Security taxes for years. On top of that, your family doesn't have a very good record of longevity, so you figure you'll retire now and enjoy life and a c omfortable retirement while you still have your health.

But before you begin receiving Social Security benefits, you may want to consider the following: Would you be better off retiring early and receiving smaller monthly payments, or retiring later and receiving larger monthly payments?

The answer could be worth tens of thousands of dollars.

But deciding whether to retire at 62, or at the full retirement age of between 65 and 67, or at the maximum age of 70, depends on a wide range of factors. These include your current and future cash needs, your health and family longevity, future income expectations and your marital status.

"If you find your health is not strong and you're single, maybe you should turn it (Social Security benefits) on sooner," said Joshua Mellberg, president of J.D. Mellberg Financial in Tucson, Ariz., which offers clients a wide array of retirement products and services.

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But it's important to know that the amount you receive when you start taking benefits sets the baseline for the benefits you'll get for the rest of your life.

Those who start receiving Social Security checks at age 62 will receive lower monthly payments for a longer period of time, but they'll forego increases of about 7% to 8% every year until they reach the maximum retirement age of 70. Those increases, plus annual cost-of-living adjustments, can significantly boost annual Social Security income for those who wait.

"If you wait until 70, your benefit could go up about 70%" compared with if you starting taking benefits at 62, said Judith Ward, senior financial planner and vice president of T. Rowe Price ( TROW ) Investment Services. "If you still plan to work, we would suggest people wait until their full retirement age or older," she said.

Brett King, senior vice president of investments for Elite Financial Associates in Tampa, Fla., said health, job and other factors could prevent some people from delaying retirement. Otherwise, he agreed that it's best to wait as long as possible, because the increase in benefits you would get each year are hard to beat. "There's nothing out there that guarantees you an 8% return," he said.

Meanwhile, Ward said married couples should plan for retirement jointly rather than independently, because the surviving spouse will get only one check after their partner dies. Since Social Security benefits are based on earnings averaged over most of a worker's lifetime, it makes more sense for the highest-earning spouse to wait as long as possible before receiving benefits.

"It's a good idea to maximize that check," she said, adding that wives tend to outlive their husbands and may be dependent on that income when the husband passes away.

The Social Security Administration sends a yearly statement to everyone age 25 or older who has paid Social Security taxes and has not yet received benefits. You can go to www.ssa.gov to set up an account, look up your work history and use a calculator to view your estimated benefits at age 62, at the full retirement age and at age 70.

Those nearing retirement should also consider that life expectancy has been increasing due to advances in medicine. The average 65-year-old today can expect to live well into their 80s. About 1 out of every 4 will live past age 90, and 1 out of 10 will live past 95, the Social Security Administration says.

"Life expectancy is much longer than it was," Mellberg said. "The 70s are the new 50s."

Meanwhile, those who served in the military or held another job that paid a pension but didn't pay Social Security taxes should check on what benefits may be available to them.

The Social Security Administration warns that by 2034 the payroll taxes collected will be enough to pay only about 79 cents for each dollar of scheduled benefits.

Experts said they expect the Social Security system will survive , but changes will have to be made to make it more sustainable. That could result in reduced benefits or higher taxes, which are among many other factors to consider in deciding when to start taking Social Security payments.

"Given the deficits in Social Security and Medicare, you have to think about the likelihood of taxes going up," Mellberg said. "You have to think of maintaining the same purchasing power" that you had prior to retiring.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Retirement
Referenced Symbols: TROW

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