Are you hoping to retire at 62? If so, you're not alone. Age 63 is the average time of retirement in the U.S. But before you quit your job, there are some things you can do to make sure you're ready. Get your finances in order before you retire to make sure you're in the best place to enjoy your freedom.
Can You Delay Social Security?
Many people say that they fear running out of money after they retire. Protect your future income by making a smart choice about when to begin taking Social Security. This program provides inflation-adjusted income for as long as you live. But, all future increases are based on your starting benefit. So, if you wait until your full retirement age (FRA) or later, you stand to earn more.
You do not need to start getting benefits as soon as you retire. So if you choose to stop working at 62, that doesn't mean you have to start getting Social Security at 62. You will get a larger monthly payment by waiting to collect until you are older.
You can also use strategies for married couples to get more out of your joint benefits. Working together to create a plan will help you get more money over time.
In fact, married couples who choose wisely about how and when to collect benefits may jointly receive many thousands more than those who collect early. You can use a Social Security calculator to figure out your best options.
If you have enough saved, you may want to think about using your savings to cover expenses for a while after you retire. This will allow you to delay the start date of your Social Security. Doing so can lock in a higher income amount later. That will help protect you from outliving your money.
Consider Part-Time Work
If you're ready to retire, you may have already been paring down your monthly expenses. But you might also think about boosting your earnings with a part-time job.
A part-time job can help the money stretch further. It can help you put off taking your Social Security payments. If you were born in 1943 or later, you get an 8% increase for each year that you delay. You can also use your income to build up your 401(k) or IRA.
Medicare Doesn't Kick in Until 65
Medicare benefits don’t start until you turn 65. If you retire at 62 you’ll need to make sure you can afford health insurance until age 65 when your Medicare benefits begin. (If you have a disability, you can qualify early.)
With the Affordable Care Act, you are guaranteed to get coverage even if you have pre-existing conditions. You also can't be charged more than someone who is healthier. But health insurance pricing can vary by location. Many retirees whose employers paid for their insurance get caught off guard by how expensive it can be.
Also, keep in mind, Medicare does not cover all health care costs. So, many people purchase additional health coverage to supplement their Medicare benefits. Get quotes on your health insurance costs. Build this expense into your retirement budget.
Diversify Your Portfolio
If you start to withdraw money from a tax-deferred retirement account, you might be surprised at how fast the money seems to go. You will have to pay taxes on each and every withdrawal. Consider adding an account such as a Roth IRA that's funded with after-tax dollars.
This way, when you need money, you'll be able to reduce your current tax burden by taking out some money that you already paid taxes on when you invested it.
Consolidate Retirement Accounts
If you have money in IRAs, 401(k)s, or other employer-sponsored plans, think about consolidating these plans into one account.
Many people believe their money is safer when they spread it out across many different firms. But, when you use a large, well-known financial custodian, you can build a well-diversified portfolio by owning investments all held within a single account.
The underlying assets belong to you. They are not assets of the financial firm. This means you gain very little added safety by having accounts spread out across many firms.
Another reason to combine your accounts is that tax rules require you to start taking distributions from your retirement accounts at a certain age. This is age 72, or 70½ if you turned age 70½ prior to January 1, 2020. You'll find it much easier to follow these rules when your accounts have been consolidated.
Although you are not required to take money out of your IRA until that age, it may make sense to start taking withdrawals if you need them. It depends on your marginal tax bracket and your other sources of income.
To figure out if this makes sense for you, you may wish to work with a retirement planner. Choose one who specializes in helping people decide on the most tax-efficient way to use their retirement money.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.