Things to Know Before You Retire at 62
Collecting Social Security, Medicare, and More
If you're aiming to retire at 62, you aren't alone, since 63 is the average retirement age in the U.S. Before you turn in your resignation though, there are some things you can do to make sure you're prepared financially that can have a dramatic effect on your retirement plans and finances.
You Can Delay Social Security
Many retirees say they fear running out of money. Protect your future income by making a smart decision about when to begin your Social Security which provides inflation-adjusted income for as long as you live.
Just because you retire at 62, it doesn't mean you have to start collecting Social Security at 62. You will get a larger benefit by waiting to collect until you are older.
You can also use strategies for married couples to get more out of your joint benefits than you would get if you and your spouse make your claiming decisions independently.
As a matter of fact, married couples who make strategic choices about how and when to collect benefits may jointly receive many thousands more in benefits over their lifetimes than those who collect early with no analysis. You can use a Social Security calculator to see the difference between a good claiming decision and a poor one.
Many retirees should consider using their own savings to cover their retirement expenses while delaying the start date of their Social Security. This can lock in a higher guaranteed social security income amount later, and 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 to fit a fixed-income style of living. If you can cover your monthly bills with part-time work, this could tide you over and help you put off taking your Social Security payments, which will reward you with an 8-percent increase in benefits for each year that you delay. You can also continue to contribute to retirement plans.
Medicare Doesn't Kick in Until 65
With the Affordable Care Act, you are guaranteed to get coverage even if you have pre-existing conditions, and you can't be charged more than someone who is healthier. But health insurance pricing can vary by location and many upcoming retirees whose employers paid for their insurance get caught off guard by how expensive health insurance coverage 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 so you can 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 when you have to pay taxes on each and every withdrawal. Consider adding an investment account such as a Roth IRA that's funded with after-tax dollars.
This way, when you need money in retirement, you'll be able to reduce your current tax burden by withdrawing some money that you already paid taxes on when you initially 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. Instead, when you use a large well-known financial custodian you can build a well-diversified portfolio by owning numerous types of 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 numerous financial institutions.
Another reason to consolidate is at age 72 (or 70½ if you turned age 70½ prior to January 1, 2020) tax rules require you to start taking distributions from your retirement accounts. You'll find it much easier to follow these rules when your retirement accounts have been consolidated.
Also keep in mind, although you don’t have to take money out of your IRA or other retirement accounts until age 2, for some folks it may make sense to start taking withdrawals if you need them before you are required to do so because of your age. 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 who specializes in helping people decide on the most tax-efficient way to use their retirement money.
Center for Retirement Research at Boston College. “Will the Average Retirement Age Continue to Increase?,” Page 3. Accessed Feb. 24, 2020.
Social Security Administration. “When to Start Your Benefits.” Accessed Feb. 24, 2020.
Social Security Administration. “Social Security Retirement Benefit Claiming-Age Combinations Available to Married Couples.” Accessed Feb. 24, 2020.
Social Security. “Delayed Retirement Credits.” Accessed Feb. 24, 2020.
Social Security Administration. “Medicare,” Page 1. Accessed Feb. 24, 2020.
HHS.gov. “Can I Get Coverage If I Have a Pre-Existing Condition?” Accessed Feb. 24, 2020.
Medicare.gov. “Choosing a Medigap Policy: A Guide to Health Insurance for People With Medicare.” Accessed Feb. 24, 2020.
IRS. “IRA FAQs - Distributions (Withdrawals).”Accessed Feb. 24, 2020.