People are also reading…
"Remember," by Lisa Genova. (Penguin Random House/TNS)
Retiring early? Here’s how to stretch your money and make the most of Social Security
Stretch your savings
New research gives important guidance on how to stretch your retirement dollars the furthest: In your 60s, lean on a “bridge” of withdrawals from your 401(k) and don’t start claiming Social Security until you turn 70.
While you can start claiming your Social Security retirement benefit at age 62, doing so locks in the minimum benefit you are entitled to; waiting until 70 to start entitles you to the maximum benefit. And the gap is massive: Starting at 62 will give you 76% less than starting at 70. There is no other risk-free investment out there that hands you a guaranteed 76% return over eight years. Yet fewer than 10% of retirees wait until age 70 to begin receiving Social Security.
Plan for longevity
Unless you have a pre-existing condition that suggests a shorter-than-average life expectancy, waiting for that higher payout will more than pay off assuming you live into your mid-80s. (For the record, if you make it to 65, the odds are that you will indeed live at least that long.)
That might seem beside the point if you’re stopping work at 62 or 64 or 66, and need money to live on. You might be thinking you simply don’t have the luxury to wait to claim Social Security.
401(k) vs. Social Security
The CRR researchers created a model using household survey data from 2016 that showed 65-year-old single men who had 401(k) savings had a median account value of $106,000 and were eligible for an annual Social Security benefit around $15,400. Women with 401(k) savings had a median account value of $110,000 and were eligible for an annual Social Security payout of around $14,500.
CRR then calculated how withdrawing money from the 401(k), in place of drawing Social Security, compared to buying an immediate-income annuity or a deferred income annuity.
Full retirement age
If you register at the Social Security website you can get an estimate of your Social Security benefits if you were to claim at 62, at your full retirement age or at age 70. Then you can decide if you want to withdraw your FRA amount (or less) from your 401(k) so you wait to claim Social Security as long as possible.
Not sure about all the moving pieces? This is where hiring a fiduciary financial planner to work through the numbers with you can be a great investment. Plenty of planners will take on the assignment and charge an hourly or project fee. No need to enter into a long-term ongoing relationship if that’s not what you want.
