The price of retirement

0712_retirement_1Retirement and retirement planning have a very different look today, with new rules, new strategies, and often, modified expectations.

According to a recent Gallup survey, most Americans now believe they will be able to retire at age 67. This is up from 66 last year, 63 ten years ago, and age 60 in the 1990s. For many the ideal of relying on Social Security and pensions, and filling days with golf, tennis, grandchildren, and travel, seems a bit removed from this new reality. Both retirees and those planning to retire face some difficult questions: When should I take Social Security? Will I be able to live comfortably if I defer benefits? Should I plan to work in retirement, and if so, how will my income affect Social Security and taxes? Do I have a realistic written income and investment plan? How much can I spend from my investment portfolio without fear of running short? These are issues that pre- and post-retirees are grappling with as they come to terms with retirement in the 21st century.

Planning on Social Security benefits
As we reevaluate our assumptions for retirement income, consider the following. We are living longer. Savings returns are at historic lows. Many 401(k) and retirement accounts have not yet recovered from the last recession. Understanding and structuring Social Security benefits still remain key elements of retirement planning. First, there are important timing issues to consider. While most retirees still take Social Security as soon as they are eligible, taking early benefits may no longer be the best option. Don’t view Social Security in isolation; consider it in light of all of your income
sources. This will help you make an informed decision about when to apply. Individual and family circumstances should be part of the equation as well. Look at current and future cash needs, health, family longevity, your ability to work in retirement, other income sources, and providing income for a surviving spouse. Your first step, if you are approaching retirement, should be to contact the Social Security administration and check your employment record. Be sure there are no working years that have been skipped or misreported, and review your and your spouse’s benefits at various ages.

Understanding early benefits and full retirement
If you were born in 1942, your full retirement age, (when you would receive 100 percent of your benefit), is 65 and 10 months. If you start taking benefits at age 62, you will get 75.8 percent of the monthly amount you would have received at full retirement age (but you will receive benefits for an additional 46 months.) If you defer to age 64 and 2 months you’ll receive 88.9 percent of the full monthly benefit. As a spouse, if you defer benefits until your full retirement age, you will get at least 50 percent of the monthly benefit your spouse receives at full retirement age. At age 62, you would only get 35.4 percent of that monthly benefit.

Want to work or need to work?
Volunteering and community work have always been a part of retirement (read all about it on page 42). Now, for many, earning income may have to take precedence. This can mean a simple part-time job, starting a small business, or even embarking upon a second career. There are other benefits too, in addition to the financial considerations. We know that work can bring needed direction and purpose to our lives, and it can often help give shape and order to a retirement lifestyle. The numbers are clear, though; according to the Bureau of Labor Statistics, one in five workers aged 50 and older has a retirement job today, and more than 75 percent of workers aged 50 and older expect to have some type of job after retirement.

Working and Social Security
At full retirement age you can earn as much as you want and still receive your full Social Security. However, if you are working, collecting Social Security, and have not reached full retirement age, the situation changes. Once your earnings exceed a certain dollar amount ($14,640 in 2012) the Social Security Administration will deduct $1 from your benefits for every $2 you earn over the threshold. These benefits are not truly lost, though. Once you reach full retirement age, the Social Security Administration will recalculate your benefit amount to make up for amounts withheld due to earnings. Since many people retire mid-year there is a special rule that applies to earnings for a single year, usually the first year of retirement. Under this rule, you receive a full Social Security check for any whole month you are retired, regardless of your earnings.
Calculating how much you may safely withdraw from savings and investments to supplement Social Security and pensions remains one of the most vexing concerns for retirees. We’ll explore in future articles how a written investment and income plan that takes into consideration longevity, tolerance for risk and your individual circumstance can make the decision-making process easier and more reliable.
With proper financial planning, retirement years can remain golden years. You may just have to work a little to make it happen.

Steven Weber is the senior investment advisor and Gloria Harris is Director of Client Services for The Bedminster Group, providing investment management, estate, and financial planning services. The information contained herein was obtained from sources considered reliable. Their accuracy cannot be guaranteed. The opinions expressed are solely those of the authors and do not necessarily reflect those from any other source.