One question that seems to be on everybody’s mind when they think of Social Security is: “Is Social Security going broke?”
But let me ask you this: What do you think broke means?When most people say “broke,” I think they mean zero — as in, Social Security will completely run out of money and have nothing left. But that’s just not correct.
If you look at the four-page statements that Social Security gives you, where they outline how much money you’ll get, it says that in 2034, Social Security will not have enough money to meet its obligations. But that doesn’t mean it will have zero money.Instead, if Social Security had promised $100 to someone, they’ll only have $77 to give. I know nobody wants a 23% pay cut, but when people think Social Security is going broke, a 23% reduction looks a lot better than a 100% reduction, right?
So when it comes to Social Security, don’t plan on getting nothing. Plan on 77% of whatever they’re promising you, because that’s more than likely what the money will be like. Plus, using numbers based on reality will allow you to strategize to make the most of what you’ve got.Now that we know that Social Security isn’t going broke and that it’s still an important part of many people’s retirement plans, here are some other areas of Social Security to consider when planning for your ideal retirement:
Calculating Your Social Security IncomeA lot of people don’t understand how Social Security works. That’s why it’s best to work with somebody who’s done this before and run the numbers based on reality. Don’t just sign up at a certain age because your buddy told you to or because that’s what your parents did. Just like with assuming Social Security will have no money, these notions aren’t quite based in reality.
When you get your earnings information from Social Security, it shows you a summary that tells you that at your full retirement age, you’ll get X number of dollars. But if you flip over a page or two, in smaller print, it says that “X” amount is what you get if you earn a certain dollar amount until your full retirement age. So if you’re 55 and your full retirement age is 67, there are 12 years where you have to be making the same amount of money as you did last year to receive the quoted benefit. That’s why, when we’re planning for Social Security with clients, we often go to the Social Security website, where they have an estimator that grabs your information and lets you put in your estimates, based on when you think you’d retire, and whether you’ll be working full or part time until that point. That way, we go beyond the generic answer everyone gets and have a better idea of what your Social Security income will look like and can plan strategically around it.Your Full Retirement Age
Some people feel like they can’t retire until they hit their full retirement age, but that’s not quite true. You can retire whenever you want, but your full retirement age is important because the dollar amount promised on your Social Security statement is based on when you reach that specific age. Right now, if you were born in 1954 or earlier, your full retirement age is 66. If you were born in 1960 or later, it’s 67. If you’re between those two, you’ll be somewhere between 66 and 67.
If you happen to take Social Security early, you’ll get a reduction from that amount. If you take it later, you’ll get an increase in that amount. That’s why it’s good to know how much Social Security is promising to you and when. Plus, there are a whole bunch of different rules that come into play when you’re below your full retirement age compared to when you’re at or above it.In general, 62 is the earliest you can take Social Security and 70 is the latest you can take it. If you take it early, you’re going to lose about 8% every year. If you take it later, you’re going to make around 8% more. So if you’re promised $2000 at the age of 66, your full retirement age, and you wait until you’re 70, you could be getting 32% more. At the same time, if you take it early at 62, for example, they’ll give you a 25% reduction.
I don’t know about you, but most people I know want a pay increase, not a pay cut. That’s where planning comes in. If you have a plan, even if you have a lower income or are in a position where you’re not going to have a tremendous amount of funds, you can figure out how to make the most of your Social Security.For example, for people born on January 1, 1954 or earlier, there’s a strategy to file for your spousal benefit, while allowing your own retirement benefit to grow. It’s a way to start out with one benefit and then switch to a higher one later. We have seen several people over the last year who weren’t aware of this option. But we were able to help them get money back from Social Security that they had no idea they were even missing out on — that’s one of the benefits of working with professionals.
Filing ConsiderationsThere are many different ways you can file for Social Security. You can file on your own retirement benefit, you can file on your spouse’s benefit, or you can file as a survivor benefit if your spouse has passed on.
It’s important to know what benefits you’re qualifying for to make the most of your Social Security. For example, you might qualify for a benefit on a marriage you had years ago. If you were married to someone for 10 years or longer, you might be eligible for a spousal benefit.It’s also important to note that you should plan with your spouse. You need to plan for Social Security together because there are ways to figure out the best option for collecting this benefit that will benefit both of you the most. We’ve run into widows who are living off decisions that their spouse made 20 or 30 years ago. That’s a long time to live with a decision if it wasn’t made right.
Bracing For ChangeMany people may feel the urge to rush to the Social Security office and start collecting it before Social Security makes changes or runs out of money. But remember: Changes aren’t going to happen overnight. Based on how Social Security has made changes in the past, they’ll give you a heads up of changes that will come, which will allow you time to strategize and plan for it. But if you’re retiring in the next five to 10 years, I wouldn’t count on any changes happening that would make you need to sign up right away. If you do this, you could lose a lot of money by making rash decisions and not strategizing.
Just remember, taking Social Security might be the biggest financial decision of your life when you add it all up. So you want to do it right and get the most amount of money over your lifetime. It’s nice to have friends to talk to about this stuff, but you have to consult someone who knows the ins and outs of this process, has done it before, and is prepared to guide you in the right direction. And that’s what we here at Keil Financial Partners are here for — we’re more than happy to help if you give us a call!If you’d like to learn more about Social Security or planning for your ideal retirement, listen to our The Retirement Revealed Podcast or reach out to us here on www.KeilFP.com.
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