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Are you thinking of retiring soon? Perhaps earlier than you had planned years ago? A potential hurdle could be the incentives set up by the Social Security Administration - they calculate your benefits to reward you for staying in the workforce.
But if you are looking to take an early retirement, you're not alone.
SEE MORE What If I Retired Today?
In the first 15 months of the COVID pandemic (March 2020-May 2021), about 2.5 million Americans retired. That was about twice the number of people who retired in 2019. This means there were essentially 1.2 million fewer people in the workforce over the age of 55 than would otherwise be expected.
First, find out what Social Security benefits you can expect
For anyone born in 1943 or later, your full retirement age, as defined by the Social Security Administration, is between age 66 and 67, based on your birth year. If you're contemplating retiring before that, it's important to know that the Social Security program has been orchestrated to incentivize beneficiaries to delay claiming benefits. Specifically:
If you start taking benefits at age 62, your Retirement Benefit will shrink by 25% to 30%, depending on your birth year. That's because your lifetime annual benefits are decreased by approximately 8% for each year prior to your full retirement age you start to claim them.Conversely, your lifetime annual benefits increase by 8% for each year past your full retirement year if
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Although you can start collecting Social Security at age 62, you can get much higher monthly payments if you wait as long as age 70. But many people want to or must retire before 70. If you're one of them, consider a possible strategy, backed by recent research, to use your retirement savings to put off receiving Social Security.
Build a Social Security Bridge
New research from the Center for Retirement Research explores retiree appetite for a "bridge" between retirement and collecting Social Security benefits, specifically one where retirees tap 401(k) assets in an amount equivalent to what they'd draw from Social Security on a monthly basis. This stream of payments would continue until age 70 or until the money ran out.
Such an option appealed to a good number of survey respondents; nearly 27% said they'd use it to some extent, even with minimal information about plan details. Among respondents provided with more information on the option, the total climbed to 35%. Researchers also propose a formalized "bridge" plan that employers could offer using 401(k) funds.
SEE MORE Feeling Insecure About Social Security? You're Not Alone.
But why tap those funds? The answer is that any chance to delay collecting Social Security benefits means you'll receive a larger monthly check when you finally do start to draw benefits.
How Much Can You Increase Your Social Security by Delaying Benefits?
As a rule, retirees must decide for themselves when to begin claiming Social Security benefits.
If they can wait to collect, though
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Under our country's "pay as you go" tax system, Uncle Sam wants to collect his cut periodically throughout the year as you earn income. In most cases, the required taxes are paid through paycheck withholding (your employer sends in the payments). But if you're self-employed, have a side gig, or don't have taxes withheld from other sources of taxable income (e.g., interest, dividends or capital gains), then quarterly estimated tax payments to the IRS are typically required.
SEE MORE 2022 Tax Calendar: Important Tax Due Dates and Deadlines
Estimated taxes are paid in four equal installments — generally, one installment for each quarter of the year. The first payment for the 2022 tax year was due on April 18, 2022, while the second payment was due June 15. The third 2022 estimated tax payment, which is for income earned from June 1 to August 31, is due on September 15, 2022 (that's tomorrow!).
Also, unless you live in a state with no income tax, you might owe state estimated taxes, too. Check with the state tax agency where you live for state estimate tax payment due dates.
Disaster Victims Get More Time to Pay Estimated Taxes
People and businesses impacted by certain natural disasters are typically given more time to file federal tax returns and pay federal taxes. This includes extensions for making estimated tax payments. For the third estimated tax payment for the 2022 tax year, victims o
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It probably comes as no surprise that ongoing economic fallout from the pandemic, including inflation, market volatility and the threat of a recession, have led millions of Americans to re-evaluate their retirement plans. New research from the Nationwide Retirement Institute® shows that two-thirds of Americans (66%) say they worry more now than they did before about their retirement income— that's a 10-point increase from 2021!
SEE MORE When You Claim Social Security Can Have Huge Implications for Your Spouse
In volatile moments like we're experiencing, it's easy to make emotional decisions with lifelong implications. Unfortunately, misconceptions about Social Security, which forms the foundation of almost every American's retirement income strategy, are all too common, according to the survey. The good news is with the right advice from a trusted financial professional, you can avoid unintended consequences that may come with an uninformed decision.
What People Are Getting Wrong About Social Security
About half (49%) of consumers believe if they file for Social Security early, their benefit will automatically go up once they reach their full retirement age — it won't. A sizable number of boomers (39%) who are not currently receiving Social Security plan on drawing from their benefits before their full retirement age, a decision that may cost them in the long run and should only be done with eyes wide open about implications for the future.
Misperceptions like this could make a huge difference in
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