Is Early Retirement in Your Future?

The opportunity to retire early is one many of us look forward to. But retiring early comes with decisions that you need to consider very carefully.

What are your reasons for early retirement? Are you accepting an early retirement offer from your employer? Do you plan to continue to work at a different job? Have you accumulated sufficient assets to step back from the working world? What will be your sources of income in retirement?

The first issue you have to consider is whether you've accumulated the financial assets you will need to retire early and comfortably. Because it's too easy to underestimate how much you will need, we suggest you sit down with a financial professional to review your circumstances.

If you are under 59 1/2 years of age, most retirement plans will impose a penalty on any funds you withdraw from the account prior to the plan's official retirement age. You may also have to make decisions as to how you want to receive your benefits.

Are you depending on Social Security to help provide the income you will need in retirement? You need to understand how decisions you make now will impact the rest of your life.

You can begin to take reduced Social Security retirement benefits at age 62. The reduction in benefits received will be roughly 20% annually and it is permanent.

It won't go back up once you reach full retirement age. If you continue to work, Social Security early retirement benefits will be reduced by $1 for every $2 you earn above $12,480 a year as of 2006. That drops to $1 for every $3 you earn the year you reach your retirement age and stops completely once you reach your full retirement age.

The age at which you can receive full Social Security benefits depends on when you were born, as the chart below shows. The amount you will receive is based on your earnings over your entire working lifetime. You can find out your estimated benefit by visiting Social Security's web site at www.ssa.gov.

When you will receive full Social Security Benefits

Birth year	Age
1937	65
1938	65 and 2 months
1939	65 and 4 months
1940	65 and 6 months
1941	65 and 8 months
1942	65 and 10 months
1943-54	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960	67

If you have plenty of money and anticipate a long lifespan, delaying your benefits will increase your monthly Social Security payout by 5.5 to 8% annually depending on your year of birth up to age 70. In addition to the increase from delaying retirement, you may also have more earnings used to calculate your benefit.

Social Security payments are subject to taxes based on your total income. Couples filing jointly who make between $32,000 and $44,000 will owe federal taxes on half their Social Security payment. Couples making more than $44,000 could pay taxes on as much as 85% of their benefit income.

If you plan on taking early retirement from your employer, but anticipate continuing to work, delaying Social Security until you can receive full benefits without paying a penalty for earned income may be your best bet.

Lastly, if there's a chance you could lose a considerable portion of your benefit to taxes, it might make sense to delay starting Social Security and spend down other sources of retirement income until you are age 70. That will build up your benefit payment.

The decision of when to start Social Security benefits needs to be made in the context of your full retirement savings picture.

That's why it makes sense to sit down with a financial professional and look at your options before you make decisions that can't be revised.

Dearborn & Creggs Can Help

You can count on your Dearborn & Creggs financial representative to provide the guidance and expertise necessary to help you make the best decision for your unique retirement and investment needs.