Planning for your retirement should include more than just your Social Security retirement benefits. Other elements should be added years before you retire so that you have considerable savings built up by that time.
The Potential Problem With Social Security
Although Social Security has been a tremendous blessing to millions of retired Americans through the years, the day may come soon when it becomes less than adequate. For several years, the government has made it known that unless Congress makes some changes to Social Security, seniors can expect a drop of about 20 percent in their monthly benefits.The Social Security Administration (SSA) gives two reasons why young people cannot count on living on Social Security benefits alone when they retire. Those reasons are because people live longer than they used to, and not enough people are paying into the system because of fewer births.
Congress needs to act to make some changes to Social Security to ensure it stays sufficiently funded. Currently, there are no plans to do so. Right now, the SSA will have to reduce payments by 2034. The Social Security trust funds will be depleted by then, and it will only be able to pay about 80 percent from taxes.
Social Security Only Meets the Basic Needs
Social Security benefits have an annual cost-of-living adjustment, which helps with rising inflation, but it is not likely to be enough for most people. When creating Social Security, it was never the intention to be the sole source of income for seniors during retirement.If you depend on the Social Security system to fund you through retirement, know that it is not enough to make you comfortable during retirement. Investopedia says it only intended to cover the basic living expenses—with little left over. In 2022, the SSA made average retirement benefit payments of $1,825 per month to 66 million people—and the poverty line is $1,215 per month.
Delaying Retirement
One way to help ensure you earn more in retirement would be to delay it. You can retire at 62 with Social Security, but you would only get about 30 percent of what is possible. You receive full benefits at either 66 or 67—depending on your birth date—but you get the maximum benefits at age 70. Every year you wait after 62, you earn an additional 8 percent more.Preparing for the Future
Young people, and those who still have a few years before retiring, need to be proactive about saving money now. Determine which retirement and investment tools may be the best way to boost your savings. Many financial tools used for years to build interest quickly are not earning as much interest as before, which means it takes longer to build a sizable nest egg.If your employer offers an individual retirement account (IRA) or 401(k), you should take advantage of it and start putting money into it right away. These retirement accounts are even more valuable if your employer offers matching funds, which is the fastest way to earn free money and build your savings.
Depending on how much you make, you may want to choose a 401(k) over an IRA, if it is offered. Contribution limits are vastly different. The IRS limits contributions to an IRA for singles to $6,500 per year ($7,500 if you are 50 or older), but you can contribute $22,500 per year ($30,000 if you are 50 or older) to a 401(k).
Steps to Consider to Lower Your Cost of Living
If you are close to retiring and have little or no savings, there are some steps you can take to reduce your cost of living after you retire. They include:Pay Off Your Debts Before Retiring
Move to a Place With Lower Costs
Develop a Tax Strategy
If you start collecting retirement benefits from multiple sources when you retire, there could be considerable tax consequences on your monthly benefits. Even your Social Security benefits will be taxed if you receive high enough benefits.Social Security Spousal Benefits
A spouse can earn up to one-half of the working spouse’s income in Social Security benefits. They must be at least 62 years old, and the working spouse must be collecting Social Security benefits. If they are disabled or are caring for a disabled child, they can receive even more. When their spouse dies, they can receive their benefits—or their own if it is higher.
Divorced spouses can also receive Social Security benefits based on their ex-spouse’s benefits. They must have been married for at least 10 years and been divorced for two full years before applying. The working spouse must be getting benefits from Social Security. If they remarry, they cannot obtain the benefits.
Surviving Spouse’s Social Security Benefits
Widows can also get their spouse’s Social Security benefits after the spouse dies. Before the death, they could only get one-half of the spouse’s income. After death, they can choose to get either their own retirement benefits—if it is higher—or their deceased spouse’s benefits.Planning for retirement should be done years before you retire. The earlier you start building your retirement savings and knowing what to expect during retirement enables you prepare better. Talk with a financial expert or estate planner about your best retirement strategy and enjoy a more comfortable retirement.
The Epoch Times Copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
