When Will You Be Ready To Retire?
Monday, May 26, 2008PAUL KANGAS: Another big step in the process leading up to retirement is deciding when to retire. That often goes hand-in-hand with when you plan to begin taking Social Security payments. Because Social Security is a key part of any retirement income mix, boosting its benefits could help your financial picture. Reporter Joe Collum looks at a way retirees can get bigger Social Security checks for the rest of their lives.
COLLUM: When is the right time to retire? It's a question Stan Hinden and his wife, Sara, didn't think much about. Despite Stan's long career as a business columnist for the "Washington Post," he admits that he was clueless about retirement.
STAN HINDEN, RETIREE: The truth of the matter, Joe, is that I was not prepared.
COLLUM: Hinden ended up retiring at age 69, but most workers move into retirement at the other end of that decade, in their early 60s. One of the main reasons is that it's possible to collect Social Security payments beginning at age 62. And for those who can't wait to stop working, that's a big incentive to retire then. One who fit that bill was the original baby boomer, Kathleen Casey-Kirschling. Born at one minute past midnight January 1, 1946, she chose to begin collecting Social Security as soon as she turned 62. Like Casey-Kirschling, it's estimated that at least half of the 80 million baby boomers born between 1946 and 1964 plan to begin collecting Social Security as soon as they're eligible. Some just feel like they've earned it; others fear for the future of Social Security; and some simply need the money. But for tens of millions of Americans, that could become a costly decision. That's because if you take Social Security before the normal retirement age, which is 66 for most boomers, you get reduced payments for the rest of your life. Take, for example, a man who begins receive Social Security at age 62 with an annual payment of about $17,600. But by waiting until age 66 to collect, his annual payments jump to over $23,000. The delay means he loses money if he lives only until age 77, the average lifespan at birth for an American man. But if he lives to 85, the higher payments will bring him almost $45,000 extra dollars. And by 90, he'll pocket more than $73,000 additional dollars. Barbara Bovbjerg of the Government Accountability Office says as life expectancies rise, that's a big difference.
BARBARA BOVBJERG, U.S. GOVERNMENT ACCOUNTABILITY OFFICE: If I were to die before the actuarial average, I probably wouldn't be too worried about what was happening with monthly benefits in the future. But if I were to die substantially after the actuarial average, I would want to make sure that I was not living in poverty.
COLLUM: Christine Fahlund of T. Rowe Price advises her clients to plan to be around until at least age 95. And she says the longer you can put off Social Security benefits the better, because you cannot get a better guaranteed return.
CHRISTINE FAHLUND, SR. FINANCIAL PLANNER, T. ROWE PRICE: Because it might be an 8 percent increase by waiting a year, plus inflation increase of maybe, say, 2 percent. So it might be a total of 10 percent more money being paid out to you by waiting each year.
COLLUM: Stan Hinden learned the hard way. He began taking Social Security at age 69 and a half, but had he waited six months, his payments would have been much higher. To undo his mistake, he had to repay everything he'd collected before age 70. Hinden is sill an active writer, who now specializes in retirement issues. He says one way many retirees could put off taking Social Security is by continuing to work.
HINDEN: If your income is enough to meet your expenses, I think you're fortunate. If it's not, your choice is to do one of two things: it's to either cut back on your expenses or to maybe work part-time or even full- time.
COLLUM: So when is the right age to retire? Experts say it's when you're ready financially and psychologically. But be aware that the age when you start to collect Social Security could make a big difference in terms of your retirement income. Joe Collum, NIGHTLY BUSINESS REPORT, Silver Spring, Maryland.
