The most common question regarding retirement is when should I draw Social Security and how much will it be? The next question is will I have enough income to retire?
For workers born during 1945-1954 Full Retirement Age (FRA) is 66. Drawing benefits from Social Security at FRA offers 100% of the worker’s Primary Insurance Amount (PIA).
Drawing before FRA changes 2 things.
- The benefit is reduced depending upon the age you start benefits; for FRA 66 age 62= 75%, 63=80%, 64=86.6%, 65=93.3%.
- Continuing to work limits the amount that you can earn without a penalty to $17,040, or $1,420 per month starting with the month you draw benefits. The penalty is applied to your benefit by reducing your payments $1 for each $2 over this limit.
Delaying benefits beyond FRA increases the monthly income above the PIA by 8% per year deferred and for the primary income worker increases the survivor benefit for the surviving spouse. For FRA 66 benefits are increased; age 67=108%, 68=116%, 69=124%, 70=132%.
Estimating Benefits is a question that is best answered by going to ssa.gov to establish your account and get your personal Social Security report.
The issue of can you afford to retire and will you have enough income can be addressed by putting together a retirement income plan that incorporates all sources of income that will be available to you at retirement and for your surviving spouse if applicable.
Those incomes include Social Security, pensions, retirement account distributions, rent income, earned income, income from investments and other asset income.
The most important issue when figuring income from investments is the question of what is a sustainable (for 25 years or more) withdrawal percentage. Most investment funds suggest 4% or less since we do not know when the market may experience a significant loss. Most income insurance products offer at age 65 plus withdrawal percentages of 5%, 5.5%, or even 6%. Let’s compare income from an investment portfolio of $100,000 at 4% = $333 per month and an income insurance product at 5.5% = 458 per month. The investment portfolio has a reasonable chance of lasting 25 years or more. The insurance product is guaranteed to last for your life time however long that may be.
The optimum retirement portfolio would involve funds in both of these strategies giving you guaranteed income and growth to offset inflation or funds to increase income in the future.