Are You Doing Social Security Retirement Planning Wrong?
Updated on Nov 02 2018
Many Americans count on Social Security as a major source of their retirement income, yet they are unclear on how the benefit works. Read these signs to find out whether your Social Security retirement planning is on track.
Social Security benefits are a major source of income for retirees, but far too many seniors have no clear idea how these benefits work. In fact, according to recent data from NHP Foundation, 62 percent of baby boomers are expecting too much from Social Security and over one-third have no retirement budget. Even worse, many seniors have major misconceptions about Social Security benefits that could affect their plans for retirement in adverse ways.
Get savvy about your retirement planning and make sure you’re not one of the millions confused about how the Social Security benefit will work for you. Here are four signs you may need to rethink how Social Security income will provide for your financial future.
1. You’re expecting Social Security to provide all your retirement income.
Social Security benefits are designed to replace about 40 percent of your pre-retirement income. The issue with this is that many Americans plan on Social Security to provide the bulk, if not all, of their retirement income. Not only that, Social Security funds are going bankrupt with the Silver Tsunami financial strain on the Federal government, so it’s important to be more proactive with retirement planning.
If you aren’t saving money to supplement Social Security, you’re putting yourself into a position where your Social Security benefits may be your only source of funds as a senior. This is a recipe for financial disaster, as living on Social Security alone will leave you close to the poverty level.
There are many retirement investments you can utilize to help you prepare for the future, whether it’s a 401k, IRA, stocks, bonds or CDs. An expert financial advisor can help you you prepare a retirement investment portfolio for your unique needs.
2. You’re planning on taking Social Security at age 65 or later.
As many as 70 percent of workers think they’ll take Social Security benefits at age 65 or later, according to Employee Benefit Research Institute. Around 20 percent plan to wait until age 70, which is the last age at which you can earn delayed retirement credits to increase monthly Social Security income.
The reality, however, is that 62 is the most common age to claim Social Security, while age 63 is the median age at which retirees claim benefits. Being financially prepared for an emergency or the unexpected in case illness, unemployment or caregiving forces you to leave the workforce early will give you peace of mind that you have enough funds in retirement.
To prepare, assume you’ll receive the monthly benefit amount you’d get at age 62. If you’re able to work longer, you’ll have extra income; which is a better scenario than having too little.
3. You’re not considering or aware of your spouse’s benefits when planning your Social Security retirement benefits.
Many Social Security benefits slip throught the cracks as Americans are unaware they exist. If you only plan on claiming your own Social Security benefits under your own work record, you might be missing out on a higher payment if you’re eligible for widow or spousal Social Security benefits. Here are a few things to consider:
- If your spouse earned more, carefully consider whether claiming under his or her work record could proide you with more money than claiming your own work history.
- You can still claim spousal benefits after divorce as long as you were married for at least ten years.
- If you’re the higher earner, consider your spouse. If you die, your spouse could opt to earneither widow’s benefits or their own benefits, depending on which is higher. If you’ve claimed your benefits early instead of waiting to earn delayed retirement credits, you’ve reduced the widow’s benefits for your surviving spouse.
4. You think taking Social Security at age 62 won’t impact your benefits long-term.
Many people don’t do their research when it comes to claiming benefits before full retirement age. According to 39 percent of pre-retirees think if they claim reduced benefits early, their benefits will increase to a standard benefit at full retirement age. This is actually inaccurate as the reduction in benefits that occurs when you claim before full retirement age affects your annual Social Security income throughout your retirement. In fact, your future cost of living adjustments are based on your lower starting benefit amount, so your monthly Social Security income will always be lower because you claimed early.
Get Educated on Your Social Security Retirement Planning
It’s important to prepare for your financial future and figure out how much of a nest egg you’ll need to save to supplement your Social Security benefit. Consider sitting down with your spouse and a financial advisor to strategize the best way to utilize these types of benefits so you can enjoy a retirement that offers financial peace of mind.
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