For today’s consumers, preparing for retirement means factoring in what Social Security will be paying once their regular paychecks stop rolling in. That means figuring out exactly what those payments are going to be, and also when is the best time to start receiving them. In fact, there are 3 Questions that most consumers have when it comes to Social Security and, in today’s blog, we’ll look at all 3 of them and answer them as well. Enjoy.
The first is the biggest; “Will Social Security actually be around when I retire?”
A recent Report from the Social Security Trustees projects that, by 2033, the Social Security trust fund will run out of money. That’s just 18 short years from now but, luckily, it doesn’t mean that payments from Social Security will stop completely. Consumers who continue to work will be paying taxes to Social Security, and that money will be used to fund retirees at almost 80% of what their scheduled benefits should be.
While that’s good news, the bad news is that some benefits will probably be cut and, more than likely, more of your Social Security income will be made taxable.
Question number two, “Will I be able to afford to retire early?”, has a different answer for every consumer. It depends on a number of factors including how far away from retirement to happen to be, and how many cost-of-living adjustments you can make, as well as your ability to downsize your lifestyle if necessary.
For younger consumers, using time and compound interest to shore up your retirement funds so that you don’t have to rely as much on Social Security is definitely a smart idea. Older consumers will have to look at their financial situation in depth and determine whether or not the retirement savings that they have, in combination with Social Security, will be enough to support them and the lifestyle that they require.
The final, third question, “When should I start claiming Social Security benefits?”, depends on a number of factors as well. The simple fact is that today people are living longer lives, meaning that their Social Security payments will need to be stretched out for a longer period of time. Yes, you can start claiming Social Security at age 62 but, if that’s not necessary, you should consider putting it off for a few years.
The reason is simply that the longer you wait to collect, the more your payments will rise, boosting the amount you receive over your lifetime every year by approximately 8%.
The final, fourth question is a bonus, “If I work, will I lose my Social Security benefits?”, is a good one. Once you reach the full retirement age any money that you make won’t to reduce your benefits, although you might end up having to pay more taxes on them. Before you hit the full retirement age however, if you make over $15,720 (in 2015) you can expect to have $1 deducted from your benefits for each $2 that you earn.
The good news is that, rather than actually losing that money completely, you’ll get it when you reach your full retirement age.
We realize that some of these answers might have actually caused you to have more questions, and with that in mind recommend that you talk to your financial advisor if retirement is near.
