by Rachel Christian, CEPF®
Senior Writer
Millions of Americans quit their jobs this year as the Great Resignation took hold of the U.S. labor market.
But many of those workers didn’t really quit — they retired.
The United State’s retiree population has grown by about 3 million since the pandemic, according to The Washington Post. That’s about double pre-pandemic retirement trends.
Generous federal stimulus checks, strong stock market gains and rising home values prompted some better-off Americans to retire early.
Meanwhile, some Americans with modest incomes were forced into retirement due to job loss, COVID-19 health concerns and caregiving responsibilities.
If retirement is on your radar in 2022, here’s a checklist of things to know and do before calling it a career.
Retirement is calling your name — but can your budget handle it? Check out these tips to avoid financial stress and worry during your golden years.
You can start collecting Social Security retirement benefits as early as age 62. But if you opt in early, your monthly benefits will be reduced significantly.
You aren’t eligible for full Social Security benefits until you reach what’s known as your full retirement age.
Full retirement age used to be 65, but that hasn’t been the case for a while.
The Social Security Administration now bases your full retirement age on the year you were born:
You get a larger monthly benefit by working past your full retirement age.
Your benefit amount increases for every month you do not accept Social Security benefits, although this added benefit maxes out at age 70.
Waiting until you reach age 70 can result in a monthly benefit that’s 77% higher than if you claimed at 62.
Like we mentioned above, you can increase your Social Security benefit by working past your full retirement age.
There are other ways to boost your monthly benefit, but unfortunately, there aren’t any quick fixes.
Nearly every strategy that might increase your Social Security check boils down to this: Work longer, earn more money and wait as long as possible.
Work at Least 35 Years
Social Security uses your 35 highest-earning years to calculate your benefit, so it’s wise to stay in the workforce at least that long.
Working more than 35 years can really pay off, especially if you’re making significantly more than you were in your early career because you get to replace some of those low-earning years with higher wages.
Report All Your Earnings
Make sure to report earnings you make from tips, freelancing and self-employment throughout your career. Failing to report these earnings could reduce the amount of Social Security you get later on.
Marriage and Divorce Make a Difference
How much you receive from Social Security also depends on your marital status.
For example, if you’re divorced and not remarried, you might be eligible to claim benefits based on your ex’s work record (provided that your marriage lasted at least 10 years). Doing so won’t impact their benefits.
Or, if your current or ex-spouse dies, you could qualify for 100% of their benefit if you meet certain requirements.
Yes, you can work and collect Social Security at the same time.
But if you make more than $19,560 a year in 2022, your Social Security benefits will go down.
Here’s how it works:
Here’s an example.
Let’s say you started collecting Social Security at 62 and receive $1,200 a month.
A couple years later, you go back to work and earn $30,000 in a calendar year.
That’s $10,440 over the limit, so your yearly Social Security benefits would be reduced by $5,520, or $460 a month.
In other words, making $30,000 during a year that falls between 62 and your full retirement age reduces your $1,200 monthly check to $740.
But — and this is really important — that money isn’t gone forever.
Once you reach full retirement age, Social Security will recalculate your monthly benefit amount and give you credit for the months they reduced your payment.
Health care will likely be one of your biggest expenses in retirement.
That’s why it’s essential to understand your health care options.
Early retirees can find themselves in a tough health care situation.
You might be able to get coverage through a spouse’s plan, assuming you’re married to someone with workplace health coverage. (If they’re on Medicare, they can’t add you to their plan).
Another option is to extend your employer’s insurance benefits through COBRA for 18 months. But at an average cost of $400 to $700 per person per month, it’s a pricey option.
Other health insurance options for early retirees include:
We’d love to say things get easier when you turn 65 and enroll in Medicare, but that’s not always the case.
Contrary to popular belief, this federal health insurance program isn’t free and it doesn’t cover all your health care costs.
There’s a lot to know about Medicare — much more than we can cover here.
But here are a few important guidelines about Medicare:
You can only qualify for Medicare before age 65 if you’ve been on Social Security Disability for at least 24 months. People diagnosed with end-stage renal disease or ALS also qualify.
Your Social Security benefits are technically income. So do you owe taxes on Social Security?
In some cases, yes.
If you have additional income, whether it’s from a job or investments, there’s a good chance at least part of your Social Security will be taxed.
If you’re a single filer:
If you’re married filing jointly:
Keep in mind that “taxable” doesn’t mean that’s what you pay in tax. Suppose you’re a single filer with $30,000 of income: $20,000 from Social Security benefits and $10,000 from 401(k) withdrawals.
That simply means that your income will be $20,000 in the eyes of the IRS: $10,000 from the 401(k), plus 50% of the $20,000 from your Social Security benefits. Uncle Sam can’t touch the remaining 50%.
If Social Security is your only income source, you most likely won’t pay any taxes on it. The average benefit amounts to just $18,516 per year and you can make up to 25,000 before taxes kick in.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
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