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Social security can make or break your retirement, especially if your personal savings are not exactly where you would like them to be. In fact, many retirees rely on their social security benefits to make ends meet.
Nearly half (48%) of married couples and over two-thirds (69%) of unmarried beneficiaries depend on their monthly checks for at least 50% of their income, according to the Social Security Administration. What is even more shocking, however, is that 21% of married couples and 44% of unmarried retirees depend on Social Security for at least 90% of their retirement income.
Today, the average social security check rises to about $ 1,300 per month. Those who have no other source of income may need every penny they can get from social security. It is therefore not surprising that many Americans share the same concern for the future of the social security program.
According to a Transamerica Center for Retirement Studies survey, about 44% of Americans are worried that benefits will be reduced in the future or that the program will be totally eliminated. Although social security as a whole does not disappear anytime soon (as long as workers continue to pay their taxes to finance the system), it is quite possible that your monthly checks are not as big as you would like.
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Boomers are retiring en masse, putting social security to the test as benefits pay more money than taxes for younger workers. As a result, the Social Security Administration estimates that the program may need to reduce benefits by up to 20% by 2035 (assuming that Congress does not propose a solution before this dated).
So, what does it mean for retirees? This means that you risk a brutal awakening if you rely on your benefits to pay your bills. If you are already stretching your checks as much as possible, a 20% reduction could wreak havoc on your retirement plans.
Once again, Congress could find a solution before 2035, but it may not be the best idea to leave your retirement in the hands of the government. In this case, you have two options: increase your checks or save more for yourself so you do not depend so much on social security.
Fatten your monthly social security checks
The amount you receive each month will depend largely on when you claim your benefits. If you wish to receive 100% of the benefits you are theoretically entitled to, you will have to wait until you reach your retirement age (FRA), which is between 66 and 67 years old for most people. depending on the year you were born.
The most popular age for claiming benefits is 62 years old (which is also the earliest age you can claim), but by claiming this earlier, you will face a benefit reduction of up to 39%. at 30% – for life. If you wait beyond your FRA to claim, however (up to the age of 70), you will receive a cash bonus each month in addition to your total amount to make up for the time you do not receive no benefit.
In theory, you should receive the same amount of benefits throughout your life, regardless of your age; you will receive either more small checks or fewer big checks. The calculation does not always work perfectly, however, and if you know that you depend on Social Security to dispose of a large share of your income, it may be wise to charge you for larger checks.
For example, say your FRA is 67 and if you claim at this age, you will receive $ 1,300 per month. If you apply at age 62, your benefits will be reduced by 30%, leaving you with $ 910 a month. Then, if your benefits are reduced by an additional 20% because of the Social Security deficit, you only have $ 728 left a month.
On the other hand, suppose you wait until you are 70 years old. You would receive an additional 24% in addition to your total pension, so you would see monthly checks of about $ 1,612. And if you are faced with 20% discounts, you have about $ 1,290 left. In other words, although benefit reduction can still significantly reduce your income, the impact will not be as painful if you first receive heavier checks.
An added benefit of claiming later than earlier is that it gives you more time to put money into your retirement fund – which is a good idea if your savings are scarce.
Retire in his hands
Social security is designed to protect your retirement savings, not to be your only source of income. Even if you can not save much on your own, building at least a small nest egg in retirement can ease the burden and save you time.
It is also easier than you thought to save for the future, but the essential is to save early and often so that your money has more time to grow. Thanks to compound interest, you will realize a snowball effect on your savings: the longer your money stays in your retirement account, the more it will increase. And if you start early enough, you will not need to contribute much every month to see significant gains over time.
For example, say you are 40 years old and you want to retire at age 70. You have not saved anything yet, but you are just starting to put $ 100 a month into your retirement account, with an annual rate of return of 7%. At this rate, you will have about $ 113,000 hidden at age 70. (In addition, if your employer offers contributions equal to 401 (k) contributions, you can potentially double that number with no extra effort on your part!)
That alone, this $ 113,000 is unlikely to be well in retirement. But combined with social security benefits, it can give you a little more financial leeway. If we use the 4% rule here (which says you can withdraw 4% of your savings in the first year of your retirement, then adjust those withdrawals each year after inflation), you can withdraw about $ 4,500 in the first year – or $ 375 a month.
Again, this money alone will not be enough to live. But in addition to your social security benefits, it can be a little easier to pay your bills and still have some time to enjoy.
When planning your retirement, avoid putting all your eggs in one basket. Regardless of what Social Security looks like when you retire, it will be easier to rest knowing that your retirement plans are as safe as possible, no matter what life is all about.
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