Need more income in retirement? Unless you can put away a lot more while you’re still working, which is tough for most of us, or get lucky in the stock of the month club or the lottery, which I don’t recommend, the only way is to work until age 70.
Most people haven’t figured out yet that the government, by adding restrictions to the system, has magically raised the real retirement age in the U.S. to 70.
And, as with all great illusionists, Uncle Sam did it while we were all watching and almost no one saw a thing.
Despite the fact that we lose a small fortune by opting out of the rat race early, we take a huge cut in benefits just to do it a few years early. But the majority of us still claim our Social Security benefits at 62.
So how much do we really lose by cutting out early?
The official answer is we get 132% more income from Social Security if we wait until age 70. That’s a lot of change, but not so fast.
The average monthly check at age 62 is about $1,200. If you receive that amount, not including inflation adjustments, between the ages of 62 and 70 you would receive a total of about $115,200 in benefits.
And if our survival estimates are correct, if you make it to age 65 then you can expect to make it to about age 84.
From age 70 to 84 is another 14 years or another $201,600. That’s a total to age 84 of about $316,000.
You’ll actually get a little more from cost-of-living adjustments, but they are not expected to not keep pace with inflation so we will actually be losing money long term.
Considering the system is virtually broke, or will be by about 2030 – unless the geniuses in D.C. fix it – they want us to delay receiving anything for as long as possible. It is a numbers game, so they dangle that 132% out there to keep us off the dole.
Let’s suppose you do what the government wants and wait until age 70 to apply for benefits. In this case, between age 70 and 84, the total amount we will receive, based on the government’s estimates, is about $2,784 per month, up from $1,200, or a total of $467,712 – in just 14 years.
That’s almost 48% more money without any cost-of-living increases in eight years’ less time!
If you were fortunate enough to have been making the maximum contribution each year to the system – now that’s a double-edged sword, isn’t it – which, by the way, is very likely to increase in the next few years, the monthly increase is to as much as $3,466 at age 70 from $1,816 a month at age 62.
Not quite as good on a percentage basis, but a heck of a lot better than $1,200 a month – almost three times better.
Up to now, none of this should be news to anyone.
But what really puts this idea of 70 over the top is if you work until 70 you also can contribute another eight years to your IRA or 401(k). If you max out a 401(k) for eight years, that’s another $176,000. That’s a combined $643,000 to age 84, and that is not including any growth of your principal.
When you look at the real numbers, the realistic official retirement age really is 70, certainly not 62, or even the full retirement this year for most of us, 66.
Sixty-two may look good at the time, but, if I were you and your health allows for it, I’d find a way to make it to 70, and fund your retirement!