How to comfortably retire at 62

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The key to retiring at 62 is to assess your current assets, estimate your future income and your preferred lifestyle, including whether you’re willing to work part-time and how you’ll pay for health care until until Medicare takes effect. retire and start collecting Social Security benefits, many Americans want to retire earlier, if possible. A financial advisor can help you create a financial plan for retirement, no matter what age you want to do it.

What to consider when retiring at 62

If you are determined to retire at 62, you must first ask yourself some important questions. Here are some of the most important things to weigh in the balance:

  • How much money you will need to cover your monthly expenses

  • How Much Income Can You Expect From a 401(k), Individual Retirement Account, Pension, Taxable Investments, and Cash Savings

  • What lifestyle would you like to have in retirement

  • Whether you continue to work part-time or start a side hustle or business

  • How you will pay for medical costs until you become eligible for Medicare

  • Your general health and expected life expectancy

  • What you have for long-term care and life insurance

  • Whether you want to leave a financial legacy for children, other loved ones or a charity

The goal is to get an idea of ​​your level of financial readiness to retire at age 62 and to determine if your plan is feasible, based on how much you will have saved and what you expect to need.

Anticipating health needs

For many seniors, health care is one of the biggest expenses you will face. If you’re retiring at age 62, it’s important to keep in mind that you can’t get Medicare until age 65. This leaves a three-year gap during which you will either have to buy health insurance, which means paying premiums, or paying out of pocket.

Assuming you stay healthy or have plenty of savings in a health savings account (which offers tax-free withdrawals for eligible medical expenses), this might not be too much of a concern. But if you have a chronic health condition or your spouse has one, medical bills could quickly eat into your savings.

Planning for retirement withdrawals

Another important question to ask when planning for retirement at age 62 is how much of your investment portfolio you can draw from each year. A rule of thumb for retirement withdrawals is the 4% rule. This rule suggests withdrawing 4% of your retirement investments annually, adjusting each year for inflation, to fund a 30-year retirement.

Suppose you want to retire at age 62 with $500,000 in savings and expect to live 30 years in retirement. If you follow the 4% rule, you’ll need to cap your annual withdrawals at $20,000 to avoid running out of money. That works out to just under $1,700 per month. To make this figure work, you may need to significantly overhaul your budget and lifestyle. Of course, that number doesn’t include what you might get from Social Security.

Another thing to keep in mind is the order in which it makes the most sense to leverage retirement assets. As a general rule, it’s best to start with taxable brokerage accounts before moving to tax-advantaged accounts, such as a 401(k) or traditional IRA, leaving Roth accounts tax-free last so that those can continue to grow and accrue interest. By minimizing taxes as much as possible, you can keep more of your retirement income.

Social security benefits and retirement at age 62

If you’re planning to retire at 62, social security is likely to be one of your biggest concerns. This is because 62 is the first year you are eligible to receive Social Security benefits, but your benefit will be lower than if you had waited longer to start receiving those benefits.

Normally, you must reach full retirement age, which for most people is 66 or 67, to qualify for the full monthly benefit amount. And to get the highest possible benefit, you have to wait until age 70. Receiving benefits at age 62 or any time between age 62 and your full retirement age would reduce your benefit amount.

The amount of the reduction depends on the year of your birth. For example, if you were born in 1960 or later, taking Social Security benefits at age 62 would reduce your monthly benefit by 30%. If you are married and spousal benefits are also being paid, these benefits would be reduced by 35%. So, for example, if you expect a monthly Social Security payment of $1,000 and your spouse expects $500, your benefits would be reduced to $700 and $325, respectively. This Social Security calculator can tell you what you can expect to receive, based on your age and when you start collecting benefits.

Going from $1,500 a month in expected benefits to $1,025 could shrink your retirement budget if you have fewer assets to lean on. For example, if you didn’t save as much as you would have liked in your employer’s 401(k) or only had an IRA to fund, your nest egg might be smaller. This could make it more difficult to stretch a reduced Social Security benefit.

Should You Rather Delay Social Security?

The flip side of Social Security is that waiting to take benefits can work in your favor. You can delay benefit payments until age 70, which would then allow you to claim 132% of your total monthly benefit amount. The table below calculates the monthly rate of increase by year of birth:

Deferred pension increase

Years of birth

Rate of increase over 12 months

Monthly rate of increase

1933 to 1934

5.5%

11/24 of 1%

1935 to 1936

6%

1/2 of 1%

1937 to 1938

6.5%

13/24 of 1%

1939 to 1940

seven%

7/12 of 1%

1941 to 1942

7.5%

5/8 of 1%

1943 and after

8%

2/3 of 1%

As you can see above, you can enjoy a nice boost in retirement income, but this scenario assumes you won’t need those benefits for a while. It’s also a bet that you’ll live long enough for the higher benefit to make up for the years without Social Security checks. But, on the other hand, if you’re set on retiring at 62, you’ll need to make sure you have enough money to cover your expenses so that deferring Social Security works for you, not against you. .

For example, you could take a part-time job or start a business to earn extra money. But whether you want to or not may depend on the lifestyle you hope to have in retirement. If you’re willing to spend time indulging in neglected hobbies or just relaxing, continuing to work in some form may not be high on your priority list.

It’s also important to understand how earning income in retirement can impact your Social Security benefits. If you have reached full retirement age (66 or 67), your benefits will not be penalized, regardless of your income. However, your benefits could be reduced if you have not reached full retirement age and earn more than a certain amount. In 2022, your benefits will be reduced by $1 for every $2 you earn above $19,560. Your benefits will be reduced by $1 for every $3 you earn over $51,960 (assuming you reach full retirement age in 2022).

If you’re married, you and your spouse might consider splitting the difference with Social Security. For example, one of you could collect benefits at age 62 while the other waits until full retirement age or even delays benefits to age 70. Running all the numbers can help you decide what’s best for stretching your retirement dollars.

Conclusion

There is no secret formula to retiring at 62 and leading a comfortable life. It all comes down to saving regularly and planning ahead to make sure you have enough money. Social Security is only part of the picture, but it is an important part.

Weighing the pros and cons of taking Social Security at age 62 can help you decide if it’s the right decision. You also need to budget for retirement, which you can do with this free calculator.

Tips for investing

  • Consider talking to a financial advisor to find out if you are financially ready to retire at age 62. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.

  • If you’re hoping to retire at age 62, it’s important to keep a close eye on your investment portfolio. Consider reviewing your portfolio at least once a year to rebalance and reap tax losses if you are not already doing so.

Photo credit: ©iStock.com/AmpH, ©iStock.com/SolStock, ©iStock.com/Leadinglights

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