With the recent fluctuations in the stock market, many people close to retirement age may be wondering what the effects of big stock market correction would have on their retirement.
A CNBC article by Sharon Epperson dated October 1, 2015, briefly summarizes the pluses and minuses of electing early retirement at the age of 62 versus retirement at the full retirement age of 66 or 67, or even waiting until age 70 to start claiming benefits.
See: https://www.msn.com/en-us/money/retirement/claiming-social-security-at-this-age-can-cost-you/ar-AAf0crW?li=AAa0dzB (last visited October 1, 2015).
Making this decision is a highly personal and case-by-case decision. If an individual is in strong need of immediate cash flow, it may be best to take early retirement benefits at age 62.
However, by and large it may be a mistake to take early retirement benefits. This is because doing so results in lower benefits for the rest of your life, resulting in compounding negative effects.
Of course, in making the decision, individuals should consider their other retirement funds, including 401 (k)’s, pensions, IRAs, and so forth.
According to AARP and the Financial Planning Association, 39% of people in their late 40’s, 50’s and 60’s expect social security benefits to make up nearly half of their retirement income.
Waiting until age 70 to claim benefits can also have a compounding effect, but in a positive way, because benefits can grow by 8% per year. This is a very reasonable return, even when compared to historical average stock price increases. And, presumably it is safe, although this may depend on whether or not legislators can enact reasonable reform measures to ensure the long-term financial strength of the Social Security trust fund.
Of course, it is always best to consult with a financial planning professional in making the decision when to begin claiming various retirement benefits, in order to avoid making a potentially costly mistake.
In this regards, I should make it very clear that I am not a financial planner and nothing contained herein should be construed as financial planning advice for any particular individual situation. The reason I post on issues like this is because they may be of interest to many of my clients, not only with respect to family law issues, but also for clients who may find themselves in the unfortunate situation of becoming disabled as they closely approach retirement age.
A person can often claim early retirement at age 62 while still pursuing a disability claim. If the person is awarded disability benefits, then claiming early retirement will not have a negative impact on the retirement benefits they will receive at full retirement age. This is because of the so-called “disability freeze”, in which retirement benefits are frozen during a period of disability, meaning that the person’s benefits will not be negatively impacted during a period of disability in which they are unable to work and contribute social security taxes.
However, it should also be borne in mind that although special rules apply for proving disability at an advanced age, a rigorous burden of proof must still be satisfied in order to prove disability. If the case is a very strong case from the standpoint of medical evidence, it may be wise to take early retirement in order to have some cash while awaiting a determination. In determining whether or not to take early retirement while pursuing a social security disability claim, it may be helpful to consult an experienced profession.
This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.