Save some money if you're turning 55 or older and you may retire, get laid off/quit/fired...

69hurstolds

Geezer
Supporting Member
Jan 2, 2006
6,838
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Just to make people aware-

You've had your head in the sand if you haven't been paying attention to the current economic conditions coming up the road. While some people may think their job is safe, because "everyone is hiring", that may be true this week. A few months from now, that may not be the case. I already retired several years ago now, and still haven't taken social security yet, but will be soon as part of our retirement plan (I don't buy the bunk of waiting until 70 to get a maximum monthly check. Do the math, it may be just as smart or smarter not to wait. You still die on the same day regardless.).

Unfortunately, there is a lot of assumptions you will need to make and your own financial situation to consider. It's different for everyone. There's so many rules on retirement income from IRS and Social Security it'll make your head spin.

IRS has a "Rule of 55" which basically says that if you leave your CURRENT job for any reason, and you're at least in the year you turn 55 and if you're less than 59-1/2, you can withdraw money from your CURRENT company's 401(k) or 403(b) accounts without the 10% penalty once you leave your CURRENT job. So if you have say, an old 401(k) or other retirement account from a previous employer, and you feel a layoff is imminent, and plan on taking money from your retirement accounts, then start to ROLL OVER those earlier accounts into your current 401(k) if possible. Then it becomes your current employer's account and you can access all of it if you have to without having to pay the 10% penalty. You have to evaluate your own financial situation here, but if you have a bunch of previous employer's 401(k)'s laying around, and you're turning 55 or older, it's just another planning tool to be aware of. It may make more sense not to, or it may make sense to do it. Everyone's situation is different. Plan accordingly.

Additionally, if you're 62 or older and not reached your full retirement age, and you're not retiring yet, be alert to the fact that if you DO take Social Security payments and you don't need to, you're going to pay a penalty if you make too much money for the year, holding back $1 for every $2 you earn above the limit. Currently anything above $19,560. So if you're 62, drawing social security, and make $59,560 wages for the year, you can do the math. Not too good. You won't get anything most likely. The plus side, you get credit for the amounts you were penalized while working. On top of that, you'll be paying social security taxes on the wages you make. When you reach full retirement age, the penalty no longer applies, except they hold out $1 for every $3 you earn above the limit up until the month prior to you reaching full retirement age in the year that you reach full retirement age, currently anything above $51,960. So, that's something to consider.

As far as paying into SS, i.e., FICA taxes- Based on current rates, if you had the same salary of $59,560 for 8 years past 62 and retired when you were 70, you'd pay $36,000+ for your share of FICA from your check. And on average, you'd get roughly $1,000 less per month over those 8 years if you receive benefits at 62 instead of 70. Again, everyone's benefits will differ. But say if you got $1500 at 62, and about $2500 at age 70 from social security, and you're still dying at 85 either way, the total SS amount you receive is 62- $414,000 70- $450,000. So yes, it's $36,000 more retiring at 70 vs 62 by the time you're 85, but is it worth it to you to give up an average of $129 per month to you to start at 62 when you're obviously going to be more active and on the go than you likely will at 70? Or will you die at 69? Life is a gamble. Just a question only you can answer. If you will be depending heavily on social security income, you're probably doing it wrong. I assumed SS wouldn't even be there for us, so we saved accordingly. SS is just going to be a bonus for us, really.

Social Security looks at your highest 35 years of earnings to calculate your social security payout, so that's something to consider as well. If you make a lot more money after 62 to be able to count that income as one of the 35, it will count toward raising your benefit, whether you're receiving it or not. Also, pensions, annuities, investments, etc, don't count for or against you. You could be a multi-millionaire and still qualify for social security benefits. Only wages if you work for someone, or net-profits if self-employed are figured into the SS equation. That's it. You need 40 points, or 10 years' worth of working paying into social security to qualify.

Also, here's another thing about those COLA raises you see every now and again from SS. It will ONLY affect you on January 1 in the year after you turn 62 (or older), regardless of whether you're receiving the benefit or not. Example: if you're going to be turning 62 in July of 2023, they'll likely have a COLA increase of about 8% thereabouts to people's benefits. However, this does not include your benefit since you won't be eligible since as of January 1. Since you were still 61 on Jan 1, 2023, you weren't eligible to receive SS benefits. You'll have to wait until 2024 and beyond to see any COLA increase to your benefit. Doesn't that suck.

Any and all social security laws and policies can change in the future, so be aware of that as well. Free advice, take it or don't. I have no job.
 
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carnutjw

G-Body Guru
Supporting Member
Sep 17, 2017
536
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At least it's not complicated. :oops:
It is good to have some knowledge of how the whole system (SS and 401k, etc.) works, but I believe the complexity of it discourages the majority of people from even trying to understand the ins and outs very well. Seems like most take SS at 62, or whenever they retire beyond that, with little forethought as to the calculations you have mentioned. Financial planners might help, but I have reservations about some of them too.
 

Bonnewagon

Geezer
Sep 18, 2009
8,847
113
Queens, NY
I retired at 55 with 36 years Federal service. Do this: pay off the house, pay off the credit cards, pay off everything so you have minimal bills. Then buy what you think you will need in retirement. I bought a Boston Whaler among other things. Start doing this at least 5 years before you retire. That way you will at least be financially prepared. Stuff will still happen, like parents getting sick, etc, but not having money problems will make things go much better for you. Begin prepping way ahead of time for Social Security, health care insurance, medicare, long term care insurance, the list is endless so start learning. I pity people who just stumble into retirement and make bad decisions. Pick where you want to spend your retirement. It may or not be a good idea to move. Downsize? Upgrade? Find a cave to live in? Start thinking about this early on. When you have all your ducks in a row then you can retire on your terms, when YOU want to. Or not.
 
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spidereyes455

G-Body Guru
Mar 6, 2013
709
93
Northeastern PA
Guess its a good thing I don't have to worry about all that SS nonsense. Why not? Because I don't pay SS taxes and haven't in years even though I work a legitimate job on the books.
 
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Built6spdMCSS

Royal Smart Person
Jun 15, 2012
2,214
113
Florida Beach
I'm nowhere close to that and have always paid off everything as fast as I can. I just hate interest because I understand how one sided the banking system is. I'm not a fan of the 401k system, and even that isn't set in solid. I'm waiting for the crap "in charge" to start trying to tax the ROTH investments. 🙄

Take SS the earliest you can get the full rate, the math checks out as mentioned. For the majority of us here that age will be 67.
 
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69hurstolds

Geezer
Supporting Member
Thread starter
Jan 2, 2006
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If you've got 40 quarters of paying SS taxes from wages, you're eligible for SS, so even if you work at a job that doesn't pay SS taxes now, you still can get the benefits starting at 62. Or if your spouse qualifies, you can actually piggy back off of them and get a little even if you don't qualify for your own. Crazy, huh? I've been muddling through all the rules and such about SS lately and doing some basic math. The biggest issue about the math is that there's one constant that isn't known until you get there, and that's your expiration date. Hard to plan for that. So you have to guess. Use several "end dates" and see where it lands you. Waiting 8 years to get your maximum monthly SS benefit stipend may be what you need to do, but may not be feasible for someone else.

And whether you like your 401(k) or not, if you have employer match, do it to at least cover the match. If the employer gives a 6% match? Then put in at least 6% into a 401(k). That's FREE MONEY. Stupid to pass that up. It was nice that a former employer would do up to 6%, then at the end of almost every year they'd announce an elective bonus match of up to an additional 4% (10% total), so if you were putting in 10% or more all year, they'd throw in another 4% too. One year they only gave out 2% as it was a tough economy that year. I always put in 25% anyway, so it was a really nice extra pop to get that in my 401(k) every year. This was separate from the normal performance bonuses we'd get, which was usually about 12 - 15% on average of your annual salary. I loved that aspect of the job.

The thing previously mentioned about paying off mortgages and other things prior to retirement can't be stressed enough. Use those no-fee cash back credit cards and pay those off EVERY month. They hate that, but fugg 'em. More FREE money. I haven't paid CC interest in years. I couldn't even tell you what the interest rates are as I don't pay them. Once you pay off everything and only have utilities, groceries, and insurances, you have a pretty good handle on the budget as far as outgo. Just keep your expenses lower than your total after-tax income, and you should be just fine. That's probably a good idea whether you're retiring or not.

I left some money on the table when I retired at 57, but my plans were to retire at 60 anyway. The company offered a rare +3 and +3 deal (3 years to your age, 3 years to time in service) early retirement and I'm like, duh! Bye bye. We're actually saving more in our bank account from our pensions and investment dividends than we ever did when we were working. Granted, every day is a weekend, but no sense in spending everything we have right now, but we do buy whatever we need or want without much thought. Hopefully we'll be able to afford major care situations when we're dried up and feeble. Money is one thing that isn't in our list of top 10 worries.

Biggest problem I see today is that the younger folks don't look down the road 35 or 40 years. Feelings of invincibility soon gives way to understandings of mortality. The earlier you plan, the better situated to adjust the plan as needed. I'll get around to it works for just so long. But you do you. Whatever works for you and your family. If you're good with finances, no issues, you'll already be prepared. If you're not, be honest with yourself about it and find a good financial planner to help you get to your goals.
 
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Bonnewagon

Geezer
Sep 18, 2009
8,847
113
Queens, NY
Because I don't pay SS taxes
Me neither. Jim, you are under railroad pension, right? I remember delivering SS and RR pension checks on the same day. I'm not sure how exactly yours works but as a Federal annuitant any SS benefits I earned are reduced to point that they are nothing. That would be the Government Pension Offset and Windfall Elimination Provision. So even if I worked 40 quarters and/or my Wife died and left me her SS benefits, I would get nothing. But a total bum, that never worked a day in his life could collect on his Wife's SS benefits. My union has been working since the '80's to get rid of this but so far the stuffed shirts in DC think everyone is overpaid but themselves. Like 69hurstolds said- start thinking about this stuff early. My USPS personnel office sent me a big binder called the "Blue Book" and it was filled with everything I needed to retire. Forms, instructions, options, a total package. Once filled out, I attended a conference call to go through it page by page and any questions were answered. Then I sent it in and when I was ready all I had to do was call and set the date. EZPZ. My Wife retired from the NYC Board of Education. A total nightmare. No information and every little thing was like pulling teeth. Two years retired and still everything is not settled. What a cluster****. Also- talk to workplace friends that have retired. They know best. Avoid the mistakes they made.
 
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69hurstolds

Geezer
Supporting Member
Thread starter
Jan 2, 2006
6,838
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Yeah, there is that Railroad retirement thing and the Federal windfall thing as well. That's a totally separate issue which could be good, could be bad. I don't know. I've only known a handful of people that ever retired with that, and they weren't really complaining about it. I can say this much, they EARNED that retirement. I don't have enough information on it to even weigh in about the RR retirement stuff, though. Good point about talking to someone else that retired under the same benefit package you will be under.
 

spidereyes455

G-Body Guru
Mar 6, 2013
709
93
Northeastern PA
Since I'm under the railroad retirement I don't pay into SS nor am I able to receive SS when I retire. Way back in the old days decades ago RR employees could "double dip " and collect both SS and RR retirement, but that loophole was closed years ago. However even though my wife doesn't work once she reaches retirement age she will also be able to draw RR retirement and receive about 50% of what I will from both tier one and tier 2 ,that's on top of what I get. I have heard stories from guys that said due to that they made just as much or more being retired than they did while working.
 
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spidereyes455

G-Body Guru
Mar 6, 2013
709
93
Northeastern PA
Also with railroad retirement you can retire at 60 with no age penalty provided you have your full 30 years in by that age. Unfortunately for me I will have to work past 60 to get my full 30 in. I could still retire and draw on the RR retirement at 60 but with reduced benefits until I reach full retirement age.
And you are right we really do earn that retirement. The railroad is not just a job or even a career it's a lifestyle and it comes first whether you like it or not
 
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