Are You Relying Too Heavily on Social Security in Your Retirement Plan?

Most of us count down the days, months and even years in anticipation of starting Social Security.
starting social security
In fact, besides qualifying for Medicare, perhaps the retirement event we most look forward to is the day we can start receiving these benefits — after sleeping in of course. Carly Simon’s lyrics come to mind:

Anticipation

Anticipay ay.. tion…

It’s makin me wait

It’s keeping me wai ay ay ay ay ay ay ay ya tin

However, retirees today may be relying too heavily on Social Security — and starting too soon.

Social Security is Designed to Only Replace a Small Percentage of Your Pre-Retirement Income

According to the Social Security Administration, “Your Social Security benefits are the foundation on which you can build a secure retirement.”

However, the SSA advises that this paycheck is designed to replace only about 40% of 70% of your pre-retirement income. (Social Security assumes that you will only need 70% of your pre-retirement income, and that benefits should only represent about 40% of that income in retirement.)

So, if you earn $50,000 a year before retirement, then you would plan on spending $35,000 a year in retirement and Social Security is designed to represent 40% of that income need — $14,000.

(The average income for 55-64 year olds is $41,000 for women and $54,000 for men and the average monthly Social Security benefit is $1,370.)

If you earn more than average, then you should plan on Social Security replacing less — sometimes much less — than 40% of your retirement income need.  If you earn less than average, then Social Security may replace slightly more of your income need.

The Reality is that Social Security is Providing a Much Higher Percentage of Income to Most Retirees

According to Social Security’s Fast Facts 2017, seniors are much too reliant on Social Security benefits.  According to the report: a full 62% of all beneficiaries rely on Social Security to provide more than half of their monthly income in retirement. (That number has been rising steadily over the last few years.)

What’s worse?  More than a third of all Social Security beneficiaries rely on Social Security to provide 90% or more of their monthly income.

You’ll Be Better Off if You Can Keep Wai ay ay ay ay ay-ya ay tin

According to a report by the Center for Retirement Research at Boston College, 90% of Americans begin Social Security retirement benefits at or before their full retirement age. In fact, the most popular age to start is 62, the earliest age possible.

However, people who claim early are giving up nearly $100,000 in benefits over their lifetimes.  One hundred thousand dollars!  That is a lot of money!

If you have not yet started your Social Security, the best thing you can do to live more comfortably, is to wait to claim your benefits.

Think about how much you are gaining and giving up by waiting:

  • If you have reached normal retirement age, which is 66 for people who were born between 1943 and 1959, you can access 100% of your benefits.
  • For each year after that, up to age 70, your benefits increase 8%, meaning you can access 32% more at age 70 than at age 66.
  • If those benefits are tapped at younger than normal retirement age, they are reduced based on the number of months you receive benefits before you reach your full retirement age. For example, if your full retirement age is 66, the reduction of your benefits at age 62 is 25%; at age 63, it is about 20%; at age 64, it is about 13.3%; and at age 65, it is about 6.7%, according to data from the Social Security Administration.

If Married, At Least One of You Should Wait to Claim

Delaying benefits is a good Social Security decision for anyone — you just get more money every month the longer you wait to start getting payments.

However, if you are married, you may have an additional incentive to delay benefits. If one of you dies before the other then the surviving spouse will get to make a choice about which Social Security benefit to receive. (A surviving spouse is entitled to just one benefit — not both.)

There is a simple rule to follow if you are married and want the best for your spouse:  The highest earner in the couple should defer the start of benefits as long as possible up until the maximum retirement age of 70.  Don’t focus on who is older. Or, who retires first.  The key is to make sure the highest earner grabs the highest possible payout.

Social Security is Only One Way to Have a Secure Retirement

While retirees today are probably overly dependent on Social Security benefits, there are a lot of options for achieving a secure retirement plan — regardless of Social Security.

The NewRetirement retirement calculator can help you discover opportunities.  Explore options like reducing expenses, tapping home equity or working a little bit longer and immediately see the impact on your current and future finances.  This tool was recently named a best retirement calculator by the American Association of Individual Investor’s (AAII).  Forbes Magazine calls it “a new approach to retirement planning.

However, if all else fails, you might want to explore 11 Ideas for Living on Nothing More than Social Security in retirement.

See How Heavily You are Relying on Social Security in Your Retirement Plan




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