Last week we asked the question, “Will your retirement savings last 23 years?”  Today we ask, how does your age affect your retirement?

Video: How Does Your Age Affect Your Retirement?

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How Does Your Age Affect Social Security?

We are eligible to begin Social Security retirement benefits at age 62. But if we retire before our normal retirement age, our benefits get discounted. The discount can be as much as 30%.
 
Delaying Social Security beyond normal retirement age means larger benfeits. Each year we delay, our benefits increase by 8%.
 
The income you need from savings depends on how much Social Security you receive. If you get less from Social Security, you need more investment income. When your investment income gets too high, you increase the risk of running out of money.
How Does Your Age affect Your Retirement

A Case Study: John and Patty

John and Patty are both 60 years old. They have accumulated $330,000 in their retirement accounts. Between contributions and earnings, their accounts should grow by $15,000 each year.

At normal retirement age, John will receive $2,000 per month in Social Security benefits. Patty will receive $1,500.

Remember, every year everything you buy costs more.  So John and Patty will need more income later in retirement.  

Let’s see how the age they choose to retire impacts the financial parts of their retirement.

how does your age affect your retirement

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Age 62 WD Rate
A 6.5% Withdrawal rate is high. It increases the risk of running out of money.
 
What happens if they wait?
Age 65

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Age 67 WD Rate

Better, But Still Not Ideal

Waiting an additional 3 years does two things.  It reduces the Social Security discount.  And, it gives them a chance to save more.

As a result, they need less income from their savings. And because they have more in savings, the withdrawal rate is better.  But it still isn’t ideal.

Age 67

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Age 67 WD Rate

That's Much Better

Now both John and Patty receive their full Social Security benefit.  And the additional years of compounding also help.  Now the withdrawal rate is 4%, which has a higher probability of success.

For good measure, let’s look at what happens if they wait until age 70.

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Age 70 WD Rate

How Does Your Age Affect Your Retirement?

Time can be your greatest asset. And this is especially true if you aren’t as prepared for retirement as you hoped to be.

Early retirement discounts in Social Security benefits work against you. It places more responsibility on your nest egg for your income needs. And we believe the biggest threat to your retirement savings is your withdrawal rate.  

If you are able, working a few extra years should improve your retirement picture.  Those early retirement discounts disappear.  And the extra time you have to save won’t hurt either.

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