OP seems to be confusing retiring with starting to collect Social Security. You can collect SS before retiring.
If you do collect SS before your full retirement age and you continue to work, $1 is deducted from your benefits for every $2 you earn above $17,640. Since your example is an income of $100k, your SS benefits for that year would be reduced by $41,180, which would probably consume your entire benefit, and you would be better off not not starting to collect it.
Working while collecting SS also makes it more likely your income would be high enough part of the SS benefits become taxed (for those with income such that they doe receive some benefits that year).
I thought that was pretty clear. If you’re going to make half a million dollars over a five year period, the difference in SS between say $25,000 a year or $45,000 is never going to tip the balance. You are 100% correct on that point.
I think, and I could be wrong, that most of the discussions along these lines revolve around someone who is retired at say 62, with a pension or savings and they are not working. If that is the case, should they collect at 62 or wait until 67 or 70. THEN the discussion that I embarked on was applicable.
It depends on your retirement savings. If you have enough retirement savings at 64 to fund the kind of retirement you want, waiting until 67, say, to retire does get you additional money but doesn’t improve your quality of life. In fact it might hurt it. Notice that lots of people who talk about working until 75 are professors who have tenure, low or no teaching loads, and low stress. You don’t hear this much from laborers.
The only time it financially hurts to work longer if you work until after 70, when your required withdrawal from IRAs would get taxed at your incremental tax rate, which will be relatively high. I knew someone who retired for this reason.
I scheduled my retirement so that my wife would be covered by COBRA until she hit Medicare age. I worked a few months longer than I expected to since my boss made me an offer I couldn’t refuse. I worked until 64 1/2, and I’m now 67 1/2 and still not taking my Social Security. I am taking spousal benefits from my wife who will switch over and take mine when I hit 70. That option may not be available for you.
I’m doing it this way for cash flow. SS at 70, plus an annuity, plus dividends from my investments will more than cover regular expenses.
tl;dr - make a decision on quality of life, not just dollars.
That’s what your thread is about - but it is probably *not *what almost every discussion you’ve every read was about. Those are about “I’m going to stop working at age___. Should I start collecting SS immediately ( or at age 62) or wait until age___?” Which is why they never mention the money lost by working the extra years - it’s not an option for the question they are attempting to answer. If I have plans to stop working at 56 or 60 or 62, it’s irrelevant that I could sock away more money by working until 67 or 70. The question is " Given that I am going to retire at ( age younger than 67) is it financially better to collect SS at 62 or wait until 67?" Or the discussions are not only about the financial aspects.
It’s so self-evident that continuing to work at your current rate of pay for an additional X years will bring you more money than not doing so that it doesn’t even rate as a question to be answered.
In your OP you asked
and the answer is that what you’re missing is that few, if any articles or discussion are addressing the exact scenario that your talking about.
Well, if you had read the entire thing you would have seen that working longer is always better (what everyone else has said) unless it provides you with money you don’t need to retire on since you have enough. I was talking about quality of life in retirement, not quality of life working versus non-working.
I don’t think that’s it. The discussion doesn’t need to be about my exact scenario. What is puzzling is that the discussion virtually never references the lost income experienced by foregoing more years of working.
Yes, I know you are. Again, (if you would kindly read the OP), I (first) want to understand the financial aspect only. I worded the OP carefully in hopes that the thread focus on that part of it.
mmm
If you retire at 62 you will get a lower monthly payment, but you’ll be getting it until you die.
If you retire at 67, you’ll get a higher monthly payment, but you’ll get it for five years less.
The only thing to consider is how long you think you’ll live. When I ran the numbers both ways, the lifetime payouts equaled out at about age 80. If I expect to live past 80, it makes more sense to wait on the payments as long as possible, so I get more money per month for the rest of my life.
OTOH, maybe I expect to die before I reach 80. Then it makes more sense to start taking payments earlier, even though they will be lower.
Of course there are a lot of other factors to consider, but that’s the ground level of the “earlier is better” school of thought.
The confusion seems to be in what you want to maximize. If it is total lifetime income from all sources, continue to work. If it is to maximize the amount of social security you draw it is a question of when you will die. The break even point is roughly the life expectancy of the general population. Do you think you’ll beat the “national average” for longevity?
Both threads have examples that show some things to consider to make a more specific evaluation.
If you are making $100,000 a year or $8,333 a month. Assume your 62 benefit is $2,000 a month. This is a high guess on what you would receive at 62. Then net lost income will be $6,333 a month a year or $76,000 a year. Total income given up in 5 years $380,000.
If you the retire at 67 and get full SS benefit the increase over your 62 benefit would need to be
$3166 a month more if you live to be 77
$1583 a month more if you live to be 87
$1055 a month more if you live to be 97.
There is no way you are going to recover the loss of 5 years of income by the increase in SS by waiting until you are 67 to retire. Those are the numbers.
If you choose to retire early you also need to consider your household income for tax reasons. If you are married to someone who is still working, that will impact your benefits. It isn’t just you. Above a certain level of household income, and the amount is very low, you may be taxed for 85% of your benefits. And you are limited to the amount of money that you can earn, also very low.
My wife is younger than me and still making good money, so 85% of my SS benefits will be federal taxable. Fortunately my state does not tax SS income but some do.
The other, main, consideration is your health. If you feel fine, and do not have a large amount of other retirement savings, keep working. Once you reach full retirement age you can keep earning as much as you want, and double dip. Collect your SS benefits, and collect your wages/salary.
If your health is poor, or if you have significant other retirement savings like a pension or 401k then retiring early makes sense. If SS will comprise a major amount or your retirement income, then it is best to wait.
That is it in a nut shell. Your benefits may be lower than you think and once you leave the workforce and retire early it will be very difficult to get back in. Be sure that you are ready to sit down and be locked in to a fixed income.
That’s what I mean by your exact scenario. The articles and discussions don’t address how to bring in the absolute most amount of money possible because it simply isn’t the question they’re trying to answer. If you expect to live past say 80, many people will maximize the total amount of money they bring in by working until they die and beginning to collect SS at 70 ( when SS reaches its maximum amount) , but you don’t hear that either . Because , again, the discussions are (almost) never about " What will bring me the most money in my lifetime?"
No offense Snnipe 70E, but that wasn’t how the numbers worked out for me, and I was using the official SS estimator.
Also, I thoroughly expect to live past 80. In my family, “dying early” is 81. That extra bit each month will help out a lot when I’m 102, like my grandfather, and have outlived all the rest of my savings.
Every article on this I’ve read, pretty much, says that continuing to work is almost always better, since not only do you not draw down your retirement savings while you are working but you also will probably contribute to them.
The exact benefit depends on your particular situation.
Just about everyone has said this - what more do you want? I think the articles don’t go into more detail about the benefits of continuing to work (financially speaking) since it is a no-brainer.
As I said you might have an issue if you work until 70 1/2 (or whatever they are going to change it to) and have to withdraw money from your IRAs which will get taxed at your incremental rate. And if you are moving money from regular IRAs into Roths while you are working you will get taxed at the incremental rate also, while if you do it after you are retired your income will be reduced and the tax on this will be reduced also.
But that’s just the details of special cases.
I think in most cases even having to make RMDs won’t increase your taxes over what they would have been by a significant amount unless you’re in the territory where you have way too much money saved. My mother just retired at 67 and has a good size IRA and only a $3k pension from her deceased spouse (my dad), but what she will need to draw from the IRA will not meaningfully change what tax rate the IRA RMDs would be taxed at if she continued working at earning $80-120k depending on bonuses. Part of it is that unless she drew almost nothing from the IRA, as she was still in the lower tax brackets her tax would increase at a 22% marginal rate as she took more from her IRA because more SS would be taxed. Thus, only a very small portion of the RMD would be taxed at 0-12% and most at 22% whereas if she continued to work through 70 and have to take an RMD she’d be in the 24% bracket.
If she wasn’t drawing SS, then maybe the RMD would be taxed at lower rates for a large enough chunk of it that there would be a meaningful loss, but it still wouldn’t make much of a difference. If it went from 0 to 24%, that would still be 24% of the IRA RMD vs. your earnings at work, whereas I consider my mother to be a typical retiree and will have an RMD of around half of her final full year’s earnings, not 4 times it. That’s a factor of 8 to overcome.
The only reason to not continue working and earning more money is because you don’t need to any more. People that enjoy their work more than anything else tend to not retire until they can no longer do it, but most people dislike something about their work, if only for the fact that it gets in the way of everything else they would want to do with their time. Only if you’re losing money after expenses (which is more likely to be possible for some employees now that their expenses are no longer deductible, but still outside the realm of most people’s experiences) consistently would retiring early be good for your finances, but for most people their mental health is better off retiring as soon as they can afford it, and that is more important than earning more money that they might not be able to figure out how to spend.
Are you saying that the SS estimator is calculating your increase by waiting until you 67 rather than 62 will increase your benefit by between $1,000 to $3000 a month?
This strongly depends on how long you expect to live. If a short time, then taking it out early works. If a long time, then waiting works. I think the break even point is the expected life span at 67 or about that.
When we were deciding if my wife should go on SS when I hit 66 or wait until she did, I ran the numbers. Since she was going to drop hers and go on mine when I hit 70, that was like her dying when I hit 70, and taking the money right away was a lot better than waiting. But it depends on health, family history, etc = plus if you have enough income from other sources to wait.