Smart readers have I! I had several comments on Saturdays post about early retirement about the risk and financial limitations over a lifetime of taking social security at 62 rather than waiting until full benefit age, in my and DH's case, 67. Truth be told, when looking at retirement, I'd say I am a bit on the pessimistic side when it come to Social Security. I know the sky may not fall, but with the yahoo's in Washington that can't get their own Sh*^&%&t together, I don't want to rely on the members of congress not taking draconian actions. SS has not been part of my income plan post employment life. If we get it, great, and if it lasts through our lifetime, even better. I truly am trying to figure out a way to use cash savings, my work pension, our Roth, and our 401 K, at a 3% annual draw, and not factor in Social Security. Still I thought it was worthwhile to look at my benefit difference if I take the payment at 62 rather than wait until 67. This is actually the same as my work pension. While I can start drawing down at 59 1/2, even if I stop working, waiting to draw at 67 gives me 35% more. This is why the cash and Roth savings is so important for an early retirement.
I went to the Social Security Calculation page, and entered my details for the calculator to give me my estimates. I will receive approximately $850 a month less by taking SS at 62 rather than waiting until 67. I would be receiving a benefit for 5 years more. Figuring the rate out the difference it would take until I am 77 before waiting until 67 starts yielding more overall. Life Expectancy for a 55 year old woman is 84 in the US, the closest age on the calculator. Using that, I would miss out on benefits of $71,400. That's not chump change is it?
Taking my work pension five years early would give me 12 years of benefits past age 67 before I would lose ground taking an early retirement payment even if I did retire at 62. That would be a loss of potential benefit of $33,000 if I live to 84. For both of course, the loss of benefit for each year I live past 84 worsens, or improves should I not meet the average and pass away earlier. It really does feel like gambling, doesn't it? So for now, we will try our best to factor no pension, no social security until age 67. We will need to figure out five years of insurance premiums for me, and an additional 18 months for DH though once I retire because I carry our insurance through my job. There is that gambling again, and like social security, I have no faith in the "leaders" that they are going to solve the health insurance problem any time soon. Our best bet is to keep ourselves as healthy as possible, with clean bill of health, preexisting conditions not withstanding for each of us.
I'm assuming that social security benefits will be ratcheted down, but not taken away entirely, given the overall health of the system, and the fact that we've all paid into it for our entire careers. Taking it to zero seems unlikely based on all of the numbers I've read.
ReplyDeleteThat said, as with everything, it's best to plan for the worst. By far my larger concern is what will be happening with health care by then, and how expensive it will be to buy a policy when you're not working. For us, healthcare will be a blocker long before anything else.
I figure if we plan for the worst, expect somewhere less than the worst, we should be OK. Yes, health care and coverage will be the retirement deal breaker for us. Just soI can be prepared, I've priced a high deductible, $13,300 out of pocket max at nearly $1100 a month for us, That means we not only would have to have the premiums saved, but each year make sure we have that $13,300 put aside as well or be prepared to draw down. That's over $120,000 potentially-crazy!
DeleteYou also have to take into account that your house will be paid for and you will have very little debt. You will not have children to support and your needs and wants will be fewer. If you have raised great kids (and you have) you have that security also. I would retire early unless I planned to have a really fancy life style.
ReplyDeleteReally the only difference is DD2 and the fact that we would be no longer in a savings mode, so just need living and travel funds.
DeleteI will tell you my dh retired last year and with me being only 60 and two kids to help with insurance, it was high. $1500 a month and now I used the healthcare.gov website and am paying $325.00 for me and $350.00 for one kid.
ReplyDeleteThat's still a pretty steep out of pocket. this is why I need to learn and plan from others experiences.
DeleteIt's a helluva decision isn't it. Had I stayed the extra 2 years I was planning on my house would have been paid off without my having to take a lump sum and I would be $1,200 per month better off. But I just couldn't do that commute any more and genuinely feared I would be in a road traffic accident if I kept going. It is scary not having the "back up plan" of a nice salary but I don't regret leaving when I did. Other than that I have private medical insurance through my former employer that is VERY good and pretty cheap so I guess we don't have the same worries over here. But I think if you can, go earlier - it's time you won't get back!
ReplyDeleteHealth care coverage seems to be everyone's key driver. It can make or break a retirement plan in the US.
Delete