Early retirement is another wish that most folk desire to achieve and this is at ages below 50. It means being able to stay longer at home without working while one is still young and strong enough to face life's challenges. However, early retirement also has its drawbacks when it comes to the question of money, especially focusing on Social Security. Is it possible then for one to retire at the age of 55 and begin the process of receiving one's Social Security retirement benefits?
The Short Answer
In short, the answer is no. Ordinarily, you cannot take Social Security retirement benefits if you are under 62 years old. Well, if you retire at 55, you might be on your own in terms of funding the initial years before Social Security takes effect. There are a few exceptions that enable some categories of public servants to retire and receive decreased pensions starting from 55; for the majority, it is possible as of the age of 62.
The principle underlying social security benefits
Social Security retirement benefits are calculated by averaging your income over the number of years you worked, specifically, the year’s income is based on the first 35 years of your working career. The Social Security Administration determines your basic benefit, or your ‘primary insurance amount, ’ by averaging your thirty-five years of income.
The smallest age you can start getting your benefits is 62, but they will remain lower than if you did not start at that age. Additionally, the amounts will be reduced if one starts receiving benefits before they reach their ‘full retirement age,’ which for anyone born in 1960 or later is 67 years. The penalties are applied to those who file for Social Security at age 62 and may cut monthly benefits by as much as 30 percent depending on the year of birth.
If you however are unable to work due to disability, then you can be eligible for some form of Social Security before the age of 62. However, those have very rigorous eligibility criteria where you cannot be in a position to work due to ill health which is expected to take at least one year.
Financing the Early Retirement Decade
In this case, if you retire at 55, expect you will have to sponsor at least 7 years without any retirement benefits from social security. The group of people that are between the ages of 55-61 can be considered as more of the ‘in-betweeners’ or the ‘years of waiting for social security’. Lump sum distributions or continued earnings from personal savings, pensions, or other forms of income are required to cover living costs for perhaps six to twelve-plus years in early retirement before tapping on the Social Security system.
If we are to consider an example, then we can illustrate this by looking at an individual who retires at the age of 55 years and has saved $ 1 million. Based on the sustainable withdrawal rate of 4 percent of the retirement portfolio, $1 million will support a retirement income of $40,000. If that provides for meals and rent, this early retiree might be able to pay for himself or herself to the age of 62 and wait for his or her Social Security checks.
Some alternatives for funding early retirement gap years include: Some alternatives for funding early retirement gap years include:
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Additionally, reducing amounts from taxable brokerage investment accounts
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Taking a step backward means to withdraw from the conventional IRAs.
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Regarding Roth IRA, it is worth mentioning that it is possible to make contributions to the account, but not earnings.
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If there are pension plans available, begin receiving pension payments as soon as they are feasible at 55 years.
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Being employed and obtaining some form of income by working on a part-time basis
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Through donations by relatives or through own savings or any other financial or library resources.
- People have been forced to downsize their homes in other to release more equity.
Whether your specific retirement goals include saving up a certain amount of money or expecting a certain income, consult with a financial planner when thinking about retiring in your 50s. This simple math is important in determining how long you and other sources might support your portfolio and other sources before reaching 62.
Learn How to Get More from Social Security Later
Still if one is retiring young before age 62, it remains wise to delay the start of Social Security as far as logically feasible up to age 70. For every year one waits above the full retirement age, there is an eight percent increase in the future monthly benefits. Therefore to delay the filing till the age of 67 up to 70 offers a win-win of 24% for the rest of your life.
When one adopts an early retirement but continues to work albeit in a limited way, it is beneficial to accumulate more points from Social Security. Extra money can lead to increased incentives in the future. There are also some approaches such as the “file and suspend” which are used to enable one of the spouses to claim retirement benefits early while at the same time accumulating delayed credits for the other spouse, but due to the act of Congress, they do not exist.
Consult with a financial advisor to gain a clearer understanding of how such early retirement influences one’s integrated, extensive retirement strategy. It may be necessary to rely on other sources of personal funds in the early retirement years, but the delayed start in claiming Social Security, along with other sources of retirement income, may still provide for adequate lifetime resources.
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