Why the Last Few Years Before Retirement Matter the Most

Hey welcome to this segment on how to calculate your Social Security break even age. And so before we even get started I’m going to have a little spoiler alert. Pretty much when we do these calculations, it’s always around age 80 to 81 to age 82. That’s that range of age where the break even point comes out from cumulative benefits. And we’re going to have plenty of time to dive into the details here in that segment so that you can better understand that. Where as I prepare you for, okay basically if 81 is our break even point. What it means is if you start earlier, you’re likely going to have more money, you know cumulatively, before age 81. And if you live past age 81, you’ll have more money accumulated. And so let’s get into the five things that we want to consider when we talk about Social Security. The first thing is just understanding Social Security benefits. So you have to at least worked for 10 years, paid into Social Security taxes. That makes you eligible. And then what they’re going to do is, they’re going to take the average, the highest average of the 35 working years. And so if you’re working and you’re thinking about retiring and you’re making really good money. And you might want to look at what your work history is. Because if there’s a year where you didn’t make as much money, your latest money that you’re making right now, it might kick off that bad year. And then your average is higher and your Social Security benefit will be higher. You can start at age 62 and you can defer all the way to age 70. The second thing is just talk about calculating your break even point for Social Security. And so what we’re going to do, is we’re going to say that for this example that there’s no COLA. Okay, because that will just make the calculations a little bit more complicated. They will make them a little bit more accurate. But we want to get big picture here, okay? So we’re not going to have COLA and obviously this is not individualized results. So there will be some resources in a minute that I’ll show you as to how you can make it personalized. So we’re going to start with a full retirement age of 67 for this example and they have $2K is what their FRA number is. Okay, so if we back it up to age 62, that means that from 62 to full retirement age, those five years, you gain about 6% a year with your Social Security. So we have to back out 6%. So we start at $2K. We back out 6% a year, 30%. That means that we’re going to get about 70% of our FRA amount, which happens to be about $1400 a month. That’s about $16,800 a year. Now if we made $16,800 a year for about 20 years, we’d have a total of $336K. Okay, let go to say if we started at age 67. That’s our $2K a month, $24K a year. We do that for about 14 years, that means that we’ll get our $336 of accumulative benefits and breaking point is about 81. So 14 years, plus 67 when we started. Now the last one is let’s say we waited until we were 70. We’re going to get from a full retirement age to age 70, you’re Social Security goes up about 8% a year. So now your $2K benefit at 67 potentially could become $2,480 a month. That comes out to be just shy of $30K a year. It’s 29,760. So if you’re making that starting at age 70, for the next 11 years roughly you’ll get to that $336K cumulative benefit. That would put you at about age 81. So it’s 81, 82, but these get very individualized and there’s some really cool things. So let’s just back up a second, talk about the third thing. What’s the impact of delaying Social Security? Well you can see from that chart, the more you delay, the bigger your contractual monthly income amount is. And so by delaying, you’re going to be getting paid more monthly. But also by delaying, you’re losing that money that you would have gotten by starting earlier. So if you start early, the slope is going to be like this. And the later that you start, the steeper the slope gets. And eventually those two will break even. And then you’ll know, you know at least what that age is. The next thing is to utilize these online calculators. If you go to https://url.us.m.mimecastprotect.com/s/8uhOCM8KVQSj9ZJNu9TwF84eVn?domain=ssa.gov. It will allow you to better individualize your breaking point. And then number five, when is the right time to decide on when to take Social Security? You’d want to look at three things. The first thing is unfortunately, how long are you going live? If you know when you’re going to pass away, we can tell you exactly when you should start Social Security. A little tongue and cheek there because the reality is you don’t really know what your best option was until you look backwards and play Monday morning Quarterback. But if you look at your family history. You look at your medical situation right now, that might help you better influence when you should start Social Security. If you feel like you’re going to live a really long time, then maybe you want to wait. If you feel like it’s not really in the cards for you, you might want to start early. The second thing is spousal benefits. Sometimes you want to plan for that spouse and that might be a reason to delay. And then finally, are you going to continue to work? Because if you’re going to work before your full retirement age, there are restrictions on how much you can make. So I hope you found that hopeful. If you ever need any help and you want to sit down with us, please feel free to give us a call or check us out on the web. Have a great day.