Retirement is hard. Knowledge is the first step.

What Does Early Retirement Look Like?

Brian Hill |

Retirement is when you have enough money that you don’t have to go to work anymore. 

Many people think retirement has to happen after they are 65 (for Medicare) or 67 (for full Social Security).  That isn’t always the case.  Common challenges and questions that arise with early retirement include:

“How am I going to pay for healthcare?”

  • Where you take your money from matters. Pennsylvania uses Pennie as their healthcare exchange.  Healthcare cost is based on Modified Adjusted Gross Income (MAGI).  MAGI adds back some costs that are not included in Adjustable Gross Income (AGI) and does not show up as a line on your tax return.
  • In 2022, a silver plan through the exchange costs ~$1,429/month.  If a 60-year-old couple has MAGI of $50,000, they will pay $228/month and $1,201/month will be subsidized (they don’t pay that part of the premium!).  If that same couple has MAGI of $100,000, they will pay $708/month and receive a subsidy of $721/month
  • Taking income from a Roth IRA or after-tax accounts can create income without increasing MAGI.  This is where proper distribution planning can positively impact healthcare costs in retirement.  Managing gains and dividends in the after-tax accounts is essential, as they count towards MAGI.  

Should I be worried about running out of money?”

  • It is essential to build a financial plan that considers longevity and inflation.  It is also important to model different scenarios based on various market performances.
  • Retiring early doesn’t necessarily mean fully retiring.  Many people leave their primary job behind and work part-time at something less stressful.  It is important to coordinate that income with retirement distributions and Social Security earnings limits to avoid surprises.

“When do I take Social Security?

  • When to take Social Security is an important decision.  Just because you retire doesn’t mean you need to take Social Security.  An eligible worker can take Social Security as early as 62, or they could wait until age 70.
  • A reduced benefit is paid for anyone retiring before their normal retirement age.
  • There is a delayed retirement credit for waiting past the full retirement age.  There is no delayed credit given once the retiree turns 70.
  • If you are eligible for survivors’ benefits, there are several situations and calculations to work through.  Having some of those scenarios modeled into your financial plan is important before they happen.
    • These are examples of the benefits that survivors may receive:
      • Widow or widower, full retirement age or older — 100% of the deceased worker’s benefit amount.
      • Widow or widower, age 60 — full retirement age — 71½ to 99% of the deceased worker’s basic amount.
      • Widow or widower with a disability aged 50 through 59 — 71½%.
      • Widow or widower, any age, caring for a child under age 16 — 75%.
      • A child under age 18 (age 19 if still in elementary or secondary school) or who has a disability — 75%.
      • Dependent parent(s) of the deceased worker, age 62 or older, receive:
        • One surviving parent — 82½%.

Let’s take the first step towards early retirement. We will gather some basic information about you.  It’s simple, and there’s no obligation after your complimentary consultation.  Contact Strategic Path today. 

References:

Healthcare.gov. (n.d.) Modified adjusted gross income (MAGI).
https://www.healthcare.gov/glossary/modified-adjusted-gross-income-magi/

Social Security. (n.d.). If you are the survivor.
https://www.ssa.gov/benefits/survivors/ifyou.html#h6

Social Security. (n.d.). Normal retirement age.
https://www.ssa.gov/oact/ProgData/nra.html

Social Security. (n.d.). Social security benefit amounts.
https://www.ssa.gov/oact/cola/Benefits.html

 

Author: Brian Hill, CFP®, Managing Partner/Advisor
Note: information is accurate at the time of publication, October 2022.

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