Many people are looking forward to 2020 simply because it's the start of a new decade. But if you plan to retire in 2020, then you clearly have your own set of reasons to get excited for the year ahead.
It's important to nail down a few basics about retirement before moving forward with it, so here are a few key points to keep in mind if you're sure you'll be leaving the workforce next year.
1. You can file for Social Security if you were born in 1958 or earlier
The earliest age you're allowed to claim Social Security is 62, and while doing so will reduce your monthly benefits, you may want or need that money as soon as you're entitled to it. If you were born in 1958, you'll have the option to file for Social Security at some point in 2020, but if you're not desperate for that income, waiting a few more years could really pay off. That's because you're not entitled to your full monthly benefit based on your earnings history until you reach full retirement age. If you were born in 1958, that age is 66 and eight months, and if you claim benefits at 62, you'll reduce them by nearly 30% in the process. That reduction will remain in effect for the rest of your retirement.
Image source: Getty Images.
2. You can claim your full monthly Social Security benefit if you were born in 1954 or earlier
Full retirement age isn't the same for everyone; it's based on your year of birth. While it happens to be 66 and eight months for workers born in 1958, it's 66 for anyone born between 1943 and 1954. And if you were born at the tail end of that range, 2020 is the year you get to collect your monthly Social Security benefit in full.
That said, it could still pay to hold off on claiming benefits a few more years. For each year you delay your filing past full retirement age, your monthly benefit goes up by 8%. This incentive does run out at 70, but if your FRA is 66 and you wait that long, you'll score a very helpful 32% boost.
3. You'll need to figure out health insurance if you're not yet 65
If you'll be retiring next year, but you won't have turned 65 yet, then you'll need to cover the cost of health insurance until Medicare kicks in. Though you can enroll in Medicare a few months prior to your 65th birthday, if you're retiring next year at 62, you'll have a three-year coverage gap to fill. Private health insurance can be extremely expensive, so make sure you know what costs you're looking at before pulling the plug on your career. It could pay to look into partial retirement if you're not yet 65, as doing so might allow you to cut back on working hours while retaining health coverage through your employer.
If you're retiring relatively close to the age of 65, COBRA is another option you can consider. Under COBRA, you'll get to retain your existing health coverage, only you'll be responsible for its full cost, which could render it prohibitively expensive. If you're looking at, say, a three-month coverage gap, COBRA could be a good choice. But if you're dealing with a year or more until Medicare takes effect, it could pay to look into other options.
The more prepared for retirement you are, the more rewarding the initial phase of it is likely to be. Keep the above information in mind if you're planning to retire in 2020. And if any of these points have changed your tune on retiring, know that you're better off postponing that milestone than leaving the workforce at the wrong time and regretting it after the fact.
