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To Retire at 62 or 67?

It’s not easy to decide when to retire. If you have a medical condition that’s worsening with age, calling it quits from the 9-to-5 grind a few years early could be exactly what you need to get the most out of retirement. On the other hand, if you’re not prepared to quit working, a couple extra years of preparation can make a world of difference when the time does come. So when exactly should you be thinking about retirement?

Unexpected Retirement

You might think of early retirement as something you have to plan years in advance, but, according to a study by Voya Financial, more than half of all retired workers end up leaving their jobs earlier than they originally planned. Whether they were laid off, started facing physical limitations, had a health problem become worse, or simply grew tired of working, most people don’t retire because of a plan—they do so because of some new circumstances in their life.

Of course, early retirement isn’t just a financial decision. Every year, thousands of people will retire only to find themselves feeling lost and without a purpose. It might be difficult to imagine missing work, but, after retirement, remaining active and engaged in the world is just as critical to your health as diet and exercise. If you don’t have a plan in place for how to spend your time, you’ll invariably see worsening health outcomes, both mentally and physically.

Social Security Benefits

As far as the financial aspects of retirement go, you can claim your Social Security retirement benefits as early as age 62, but the age of full retirement is currently set at 67. Social Security benefits for people who retire at 62 are permanently reduced by about 5% for every year before the age of full retirement. On the other hand, people who retire early and want to continue working part-time will usually only see a small reduction in their benefits, allowing them to enjoy retirement and still maintain a healthy income.

Preparing for Retirement

When it comes to retirement planning, it’s better late than never. Most people would be surprised by what financial goals they can achieve in 5 years. A good place to begin is to use a retirement calculator for an estimate of how much you’ll earn and spend in retirement. If the numbers don’t add up, you can spend less, save more, or work until they do.

When the day comes when you finally retire, it’s a good idea to have cash reserves available for about half a year of living expenses. That’s because setting up a withdrawal from your 401k, IRA, pension, or Social Security benefits can take time and paperwork. If you’re not prepared with cash reserves, you might not have the money you need to quit working and live comfortably.

Finally, it’s worth taking a few minutes to reflect on your taxes. People underestimate how much tax they’ll pay in retirement, or they don’t plan around the fact they’ll be entering a lower tax bracket. For example, a married couple can write-off as much as $500k in capital gains from the sale of a home. Taking the time to maximize your deductions before retirement can make a huge difference on what your financial situation ultimately looks like.





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