What Are Your Income Options?
The first thing to consider is what income options will be once you retire. Plain and simple: even after you retire, you will still be spending money for living expenses and hopefully some long-needed vacations. You need a source or ideally multiple sources of income to keep up your pre-retirement lifestyle.
The amount of money you have saved up and your age will likely dictate how financially comfortable you will be upon retirement and whether or not you will need to keep working. Most people will qualify for Social Security, but hopefully you have saved up with a 401(k), IRA or perhaps if you’re lucky a pension plan.
Social Security benefits can start as soon as you turn 62. This is called early retirement and decreases your Social Security benefit until you reach full retirement age, which is determined by when you were born. For those born in 1960 or later, the full retirement age is 67. The amount of money you receive from Social Security is determined by how much you earned over your work history (and thus, paid taxes on). The Social Security Administration website has some helpful calculators if you want an idea of how much you will collect from Social Security.
Tax deferred retirement plans such as 401(k) and IRA have different retirement ages, as well. 401(k) plans will vary from plan to plan, but in general, the retirement age is 55. At this age, you can withdraw from the plan without tax penalty. IRAs require you to be 59.5 before you can withdraw without penalty.
Reasons to Continue Working
In the mid-20th century, retirees had plenty of reasons to retire early. Social Security benefits were much more generous and companies were much more likely to provide defined retirement plans such as pensions. With the decline of pensions and Social Security reform, financial security during retirement isn’t a sure thing anymore. While average retirement age in the 1990s was 57, today the average age is up to 62.
There are several reasons for this. First is the financial need to keep working past retirement age. Obviously, if you didn’t put enough in to Social Security or other retirement plans while you were working, you may still need to supplement your income with a job.
Not everyone keeps working after retirement age just for money, though. Many people are living longer and as a result, people want to keep their minds sharp and social webs intact. Some people just like to work! Others may choose to work to keep health benefits at a reasonable price or to supplement Medicare.
If you are still a ways off before you get to retirement age, think about what you want your retirement to be. Will you supplement your retirement benefits by continuing to work or will you want to stop working completely? Be prepared and do your best to plan for the future.
- U.S. Department of Census: Survey of Public Pensions: State & Local Data
- Image Credit: Retirement – flickr.com/scottwills