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Your 50s is a critical time in retirement planning, because as you get closer to the day when you will be leaving full-time work, you still have time to make adjustments.
Social Security benefits may not appear to require advance planning. After all, you can’t even start claiming them until you’re 62, so you might think that you don’t have to do anything until you get ready. However, there are a few moves you should do now that will come in handy later.
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1. Decide at what age you want to start claiming benefits
To be eligible for monthly checks for 100% of the amount you are theoretically entitled to, you will need to start claiming at your full retirement age (FRA), which is 67 for people born in 1960 or later. – which means everyone now in their fifties. If you apply to your FRA, the amount of your benefit checks will be permanently reduced by up to 30%. But if you wait until after your FRA to start claiming (until age 70), you will receive the full amount of your benefit, plus an 8% deferred retirement credit for each year that you deferred filing the claim. social Security.
Some people mistakenly believe that if you apply early, benefit reductions are only temporary and you will start receiving your full benefit amount once you reach your FRA. The truth is, once you start claiming, although you get the same annual cost-of-living adjustments as other beneficiaries, you’re usually stuck in those reduced payments for life.
Suppose you are in your 50s, so your FRA is 67. If you were to apply at 62, your benefits would be reduced by 30%. But until you reach age 70 to apply, you will receive your full benefit amount plus 24% more each month.
The average Social Security benefit in January was $ 1,503 per month. Reduce that by 30% and you lose $ 451 per month – $ 5,412 per year. But add 24% and you’ll get $ 361 more per month. While Social Security is likely to be an important source of income for you in retirement, it is essential to make this decision carefully.
2. Think about how much of your income will be replaced by social security
Social Security benefits are designed to replace around 40% of your pre-retirement income, but this is only a rough guide. And the question of how much of your expenses will actually cover will depend on both the age at which you start claiming benefits and how much you end up spending in retirement.
To get an estimate of the amount of benefits you will receive, you can create a mySocialSecurity account, which will allow you to check your statements. The government website will use your actual past earnings to calculate the likely amount of your future benefits. Just keep in mind that the algorithm makes a number of assumptions, including which one you will claim from your FRA.
Once you have an idea of how much you can expect to collect from Social Security, you will have a baseline to begin to determine the additional retirement income you will need to earn from your investments and other sources. And with that data, you’ll be able to make an educated prediction as to whether you’re on track to reach retirement age with enough nest egg to meet those needs.
3. Create a backup plan in case Social Security benefits are reduced
The future of social security is uncertain as major demographic changes are taking place in this country. The program relies primarily on workers’ payroll taxes to fund benefits. For many decades, these taxes were more than enough to cover expenses, and the surplus went into what are known as social security trust funds. Today, however, with the massive cohort of baby boomers retiring and with people living longer than ever before, the amount of money collected each year in payroll taxes is not enough to cover social security benefits. retirement owed to Americans.
The good news is that this is what trust funds are for and the Social Security administration has started taking money away from them to close the gap. The bad news is that the difference between payroll tax income and benefit check expenses will only widen in the years to come, and the entire trust fund balance is expected to be depleted by. by 2034, according to the latest projections from the SSA board of directors. .
Once the trust funds are depleted, the money raised in the form of payroll taxes will only be enough to cover about 76% of future benefits – meaning monthly checks could be reduced by about 24% if Congress cannot find solution before 2034. President Trump is also pushing to eliminate payroll taxes completely, which could spell disaster for the Social Security program.
Congress can still pass a law that keeps the Social Security program solvent, but it’s a good idea to have some back-up plans in mind in case a political stalemate on the issue leads to a day when payments program benefits – and yours – must be drastically reduced. It can’t hurt to have more in your retirement fund to prepare for the worst-case scenario.
Social Security benefits can allow you to enjoy a financially secure retirement, but it’s important to think about when you plan to claim them and calculate how much you can count on them to do for you. By taking these factors into account in the decade leading up to retirement, you can make adjustments to your plans as needed and make sure you are as prepared as possible.
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