Broker Check

What does it take to retire at age 62?

July 02, 2017

You are eligible to receive reduced Social Security income benefits as early as age 62. What does it take to quit work and live off your investments at age 62? Most Americans start receiving Social Security checks at age 62, according to the Center for Retirement Research at Boston College. One problem for these folks is that they have accepted a 25 percent reduction in the size of their monthly check for the rest of their life.
But, if they wait to age 70, they will receive more than the full benefit amount available at age 66. They will get a 32% increase in their monthly check for the rest of their lives. That makes the difference between taking the earliest check and waiting to get the biggest check a 76% increase in monthly benefit.
So if you want to retire at 62, we will need to find eight years' of income to allow your Social Security benefit to increase. One way we often do this for clients is with the Time Based Bucket Strategy. As we prepare for your "financial freedom day" we want to save money into four buckets. You should already have a comfortable emergency fund so an unexpected expense won't interfere with your savings commitments or require a distribution from retirement accounts. Since our clients are working hard leading up to retirement, they are usually saving significantly each year.

We direct that money into four buckets in priority order:
Bucket 1 – Money you expect to need in less than 24 months. This money includes your emergency fund and any money you know will be needed for specific expenses in the next 24 months. This is usually in a savings account at the bank, because it's safe and easy to access.
Bucket 2 – Money you plan to spend in two to four years. This money is usually in an investment account so it can own short-term interest bearing investments. Most two-year investments will return around 2 percent per year under current conditions. This account may not hold much money until we get closer to retirement day. When you are four years away from retirement, we start building this bucket until it equals three times the annual distributions we plan to make once you retire.
Bucket 3 – Money you will not need for between four and 10 years. This money will be invested in conservative dividend paying investments. We currently hope this bucket can average 5 percent over the next 10 years. When we begin planning for retirement and we can see that it's less than 10 years away, we work to fill this bucket with enough money to cover 7 years of retirement distributions.
Bucket 4 – Money you do not expect to need for 10 years. This money is invested in a diversified basked of growth oriented investments. We hope this bucket can average 7 percent over the next 15 years. When retirement is more than 10 years out, this is the bucket we emphasize. This is where all the money to fund retirement years 10 to 50 will live. We want to add to this bucket as often and as much as possible.
Each of these buckets holds investments that are selected, monitored and adjusted over time by a professional financial planner, guided by our client's best interests. Every quarter, holdings are reviewed, adjustments are identified and any changes are made. As you begin to consume your investments you will draw from Bucket #1 first. Each year, as Bucket #1 is drawn down, you will refill it with growth from each of the other three buckets. When the system works well, there is more than enough growth in the three other combined buckets to replenish Bucket #1 each year.

At Dunncreek Advisors in St. Paul, Minnesota, we can help you create a retirement income plan that provides all the income you will need to live in comfort and grace starting at age 62. If you are planning to retire at 62, you'll need a St. Paul, Minnesota financial advisor help with a smart retirement income plan. Contact my office at 612-436-3770 or I am always happy to meet with people who have questions about their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this arti