Q: In 2018, I will turn 62 and my spouse will turn 66. What is our best retirement age option? My husband had higher earnings throughout his career than I did, and funded a 401(k) through his employer. I have a traditional IRA. We both still work but my husband is thinking about going part time.
A: The full retirement age is rising and the age at which you and your spouse receive full, unreduced retirement benefits is somewhat different. Your spouse has reached his full retirement age, but yours is 66 and 4 months. In 1983 Congress increased the Social Security eligibility age to 67 in two stages. For people like you born after 1954, the eligibility age increases 2 months per year (until it reaches age 67 for people born in 1960 and later).
Despite your later full retirement age, you are able to start benefits as early as age 62, but your full retirement benefit would be permanently reduced by 26.67%. For example, a retirement benefit of $1,000 would be reduced to $733. A spouse benefit — which is half of what your husband would receive — would also be subject to the same 26.67% reduction.
If you continue to work there are also rules that restrict what you can earn before your Social Security benefits would be reduced due to excess earnings. In addition, your earnings would subject up to 85% of your Social Security benefits to taxation. You also need to factor in the cost of health insurance. For example, should you leave employment and need to get health insurance while you are under Medicare age, that would add a considerable expense to your household budget.
Here’s an important point to consider. The full retirement age, whether 66 or 66 and 4 months, is not the age at which you receive the maximum amount you could get. If you delay starting benefits until age 70, your benefit will grow 8% per year, during that period, which can make a big difference in total retirement income over the course of retirement. In addition, it can give you and your spouse more money and years to contribute to retirement accounts. The additional years of earnings, particularly if they are your highest earning years, could also help to boost your initial Social Security benefit. Social Security uses your 35 years of highest earnings to figure your “primary insurance amount.”
TSCL strongly recommends that you take your time to learn as much as you can now about ways to maximize your retirement income. Contact your bank or the institution that handles your retirement accounts to learn if they offer retirement planning services. Check to see if there are any retirement workshops in your area, or available through your senior center, library, or local community college.
Resources: To learn more visit the Social Security website at www.ssa.gov.
Try the eligibility age calculator at https://www.ssa.gov/planners/retire/ageincrease.html
This chart illustrates how benefits would be reduced for “early” retirement at age 62 —https://www.ssa.gov/planners/retire/agereduction.html.
