Older Americans increasingly are working well into their 60s or 70s to better prepare for retirement. Some take a phased retirement approach, working fewer hours or changing careers altogether.
Easing into retirement can take many other forms: buying a second home early, taking more frequent vacations while still working or living on a smaller budget -- a form of "practice retirement" -- to name just a few.
Retirement is one of the least-planned aspects of life for many people, so easing into it financially is a good step, says Bo Hanson, CFP, a financial adviser with Preston & Cleveland Wealth Management in Georgia.
"In this country, retirement has sort of become this mythological thing where people think it's magically going to happen," Hanson says. "At 65, you're going to retire."
Hold off on Social Security
One of the best ways to ease into retirement is to live within your means and not rely on income from Social Security until age 70, financial planners say. Starting at age 62, for each year that you postpone applying for benefits, you get 8% more per year in benefits, says Kenn Tacchino, a professor and director of the New York Life Center for Retirement Income at The American College in Bryn Mawr, Pa. It's the easiest raise you'll ever get, he says.
Some people want to start collecting as soon as they're eligible at age 62, says Tacchino. But that's not the way to do it, especially since people can just about double their monthly income by waiting until they're 70.
"The question is, do you want the money at age 62 to buy a boat, or do you want a lot more money at 90?" he says.
If you go back to work
Most baby boomers reach full retirement age in their 66th year -- meaning they'll get their full Social Security benefits at that age. But for people who claim the benefits before then and subsequently find they have to return to the workforce, the benefits will be cut back by $1 for every $2 more than $14,640 earned in a year, says Dorothy Clark, a Social Security Administration spokeswoman. At the beginning of the year in which they reach full retirement age, the threshold goes up to $38,880, when $1 of every $3 is cut back by the SSA. (The threshold figures can change over time, in line with the cost of living.) Once they hit the month in which they reach full retirement age, retirees can earn any amount without it affecting their Social Security benefits.
Workers who begin collecting Social Security early but who want to stop taking the payments and restart later at a higher rate can do that only within a year, and they also have to pay the SSA back the money they've already received, says Christine Fahlund, a senior financial planner at T. Rowe Price. This allows people to restart the clock with a bigger benefit at a later date.
Workers who wait more than a year after they start collecting benefits are not permitted to repay the money and restart their benefits later. At full retirement age, they can voluntarily suspend their benefits until as late as age 70 to get delayed retirement credits. Once they resume drawing Social Security, their benefit will be larger than what they had been receiving but lower than if they had never started taking benefits in the first place, says Fahlund.
The SSA says it recalculates benefits to credit people for months when they didn't get a benefit while working.
Bottom line: You have plenty of options, but it's best to determine your needs before you begin drawing Social Security in the first place.
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