Today almost half of Americans, 42% of men and 48% of women, retire as soon as they can receive Social Security retirement benefits at age 62, even though those monthly benefits are 25% less than they would receive if they retired at their “full retirement age” of 66 to 67. The Social Security annual cost of living adjustment does not reflect the changes in the cost of living during retirement. Current medication price increases have been “tamed” to 6% per year. This can make retiring before 66 or 67, or even 70, look like cutting your nose to spite your face.
For people engaged in heavy physical labor, who are worn out, and for those who will die “young,” retiring at 62 may make sense. But fewer and fewer of us rely solely on muscle power to earn our daily bread.
In addition, after the initial rush, many of us find the prospect of 20 or 30 years of retirement, well, boring. If we return to work, even part-time, we may have a stronger sense of identity and be better off emotionally, socially and mentally as well as financially.
We can earn up to $15,720/year between age 62 and our “full retirement age” of 66 to 67 without affecting our Social Security retirement benefits. Above that, we lose $1 of benefits for every $2 we earn. But in the year we reach “full retirement age,” we can earn $41,880 without affecting our benefits. And after that, there is no limit on how much we can earn and still continue to receive our full Social Security retirement benefits.
Our base monthly benefit may not increase much with a few extra months or years of work. But our overall income does not take as big a nosedive on retirement.
For those of us who can, and particularly for women (1/3rd of 65-year-old women are projected to live to be at least 95), postponing taking Social Security retirement benefits even beyond “full retirement age” may be a good approach. For every year up to age 70, our monthly benefit increases by 8% — for life. Today there is no investment grade investment which pays as well as this.