Whether you’re planning on retiring soon or not, turning 62 is a milestone to be celebrated. Not only are you enjoying the fruits of your labor, but you are ready to look forward to your future retirement with excitement. Turning 62 also marks the time when you become eligible to claim your Social Security benefits. Regardless of when you want to say goodbye to your working years, there are some steps to take and decisions that need to be made when you turn 62.
1. Make A Social Security Plan
Just because you can claim your benefits doesn’t mean you should. If you start claiming benefits at age 62, your benefits are about 26% lower than if you waited for full retirement age (FRA), and over 40% less than if you wait until you are 70 to claim. Not to mention, Medicare benefits aren’t available until you’re 65, so if you are thinking of retiring at 62, you’ll need to factor in healthcare costs. If you were born between 1943 and 1954, your FRA is 66. Starting in 1955, two months a year is added again until the FRA becomes 67 for those born in 1960 or later.
Regardless, turning 62 is a good time to get the details in place and paperwork ready to start collecting your benefits. If you are still working or don’t need the money to cover living expenses, you can delay receiving your benefits until age 70. Creating a Social Security strategy will help you determine the best time to claim benefits and guide you in making decisions about how much to work in the years leading up to your full retirement age. It’s also important to consider how long you’ve worked and your lifetime average monthly earnings, which are used to calculate your benefit. In some cases, working a few extra years can have a big impact on your monthly Social Security benefit.
Keep in mind that the income you earn in the year before FRA and the year you reach FRA will impact your benefit amount. Any income you earn before the year in which you reach FRA reduces your Social Security benefit once it surpasses a specific limit. For 2019, the limit is $17,640. Once your earnings exceed that, your Social Security benefit will be reduced by $1 for every $2 you earn. The income restrictions change the year you reach FRA. That year there is a higher limit, which is $46,920 for 2019. Your Social Security benefit will be reduced by $1 for every $3 you earn once you pass that limit.
Finally, you’ll want to review your spousal benefits and spousal claiming strategies, especially if you are widowed or divorced. It may be beneficial to start claiming spousal benefits now and delay claiming your own benefits until later.
Social Security is complicated, so it’s important to work with a financial professional that understands the available options and can help you determine the best strategy for you.
2. Maximize Your Catch-Up Contributions
If you’re not thinking about retiring just yet, consider putting more money into your retirement accounts. These next few years are your last chance to really build up your nest egg for retirement. For 2019, you can contribute an extra $1,000 to an IRA for a total of $7,000, and an additional $6,000 to a 401(k) for a total of $25,000.
3. Take Care Of Your Health
If you want to retire before you turn 65, you’ll need to think long and hard about healthcare. That’s because Medicare doesn’t kick in until you’re 65. This would be a great time to research the costs of pre-Medicare coverage, which is often quite a bit more expensive than an employer-sponsored plan, and decide if your retirement savings can handle the extra expense.
Along the lines of health, think about your potential need for long-term care insurance. An average 63% of today’s 65-year-olds will require some form of long-term care during their lifetimes. (1) On average nationally, it costs $253 per day or $7,698 per month for a private room in a nursing home. (2) But the older you get, the higher your cost for a long-term care insurance policy will be and the greater the likelihood of your application being denied. Generally, the last age long-term care insurance is affordable is when you are in your mid-60s.
4. Create A Retirement Budget
Creating a budget is a good practice no matter what age you are, but it’s especially important as you draw closer to retirement. Mapping out your expenses and income will help you visualize a few scenarios to determine if you can retire early and what your income will look like at different points in your retirement.
Playing around with the numbers helps you to see how much you’re projected to spend, as well as gives you an indicator as to how much you may still need to save until you actually retire. This would be a good time to see where you can currently cut back on your budget to increase your savings for retirement down the road.
What Are Your Plans?
Have you thought through these five action steps? If you’re feeling overwhelmed at planning for retirement or figuring out how to manage your finances at this stage in your life, it’s useful to work with a professional who has worked with those in a similar situation as yours. Contact me today for a free retirement consultation so you can make sure your retirement plan is working for you, no matter how old you are! Schedule an appointment with me online or reach out to me at kevin@roberts-cpa.com or (502) 426-0000.
About Kevin
Kevin Roberts is a CPA and CFP® specializing in providing virtual CFO services to individuals, families, small businesses, and professionals in the medical, professional service, and restaurant industries. He has more than 20 years of experience in accounting and taxes, and more than seven years in the financial services industry. Regardless of the services he provides, Kevin strives to offer clients confidence knowing that their financial aspects are being addressed and monitored by professional and competent individuals. Based in Louisville, he works with individuals, families, and businesses throughout Kentucky. Learn more by connecting with Kevin on LinkedIn or emailing kevin@roberts-cpa.com.
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(1) https://longtermcare.acl.gov/the-basics/
(2) https://longtermcare.acl.gov/costs-how-to-pay/costs-of-care.html