Q: One of my friends told me they’re not planning to save for retirement because they think their Social Security benefits will be enough to support them. Do you think that’s realistic in most cases?
A: With life expectancy on the rise, and fewer and fewer people retiring with pensions today, many of us will likely need to increase our retirement savings in order to sustain our retirement desires. In my opinion, relying solely on Social Security to support your retirement income needs and wants will likely not be sufficient in many cases. Please share this article with your friend.
If you’re counting on Social Security to provide you with a secure retirement, think again. Social Security benefits currently account for just over a third of the income of Americans 65 or older.1 What’s more, longer life expectancies and the aging of the population will put an increasing burden on the Social Security system, making your own retirement funding more important than ever.
Social Security: Many things to many people
Social Security is the general term that describes a number of related programs: retirement, disability and dependent and survivor benefits. These programs provide limited financial assistance to workers and their families when their normal flow of income shrinks because of retirement, disability or death.
According to the Social Security Administration’s most current data, 64.2 million Americans now receive some type of Social Security benefit or assistance.1 This includes elderly retirees and their families, disabled workers and their families and survivors of deceased workers.
Contrary to what many think, Social Security was not designed to meet all the financial needs that arise from a person’s old age, disability or death. It was — and is — intended to serve as a supplement to private savings and privately funded retirement plans. So the more you can do for yourself to save and invest for retirement, the better off you may be.
How much will Social Security pay?
The exact amount of your Social Security benefit will depend upon your earnings history. You can obtain an estimate of your benefits at the Social Security Administration’s online estimator. You can also call the Social Security toll-free number at 800-772-1213 and request Form SSA 7004, the “Request for Social Security Statement.” Complete the form and send it back. You will receive a personalized estimate of your benefits, plus a statement showing your annual earnings. Like reconciling your bank statement, your Social Security summary of annual earnings should be verified against your tax-return statements, W2 forms or your own records. If there are any discrepancies, report them at once.
How Social Security works
Social Security contributions are paid by you and your employer. Your contributions were deducted from your paychecks since the day you started working and are matched by an equal amount paid by your employer. These contributions pay for:
- Retirement benefits — Collectible at any time after age 62 and based on the number of years you’ve been working and the amount you’ve earned. In some cases, your children and your spouse may also be eligible for benefits on your account, which now also includes same-sex spouses who are legally married.
- Survivor’s benefits — A kind of life-insurance coverage available to your spouse and dependents.
- Disability insurance — Provides a monthly income in the event you are unable to work due to a disability. Eligibility depends on the number of “credits” you have earned and your age.
- Medicare — Entitles you to medical benefits and coverage, including hospital insurance after age 65.
When you retire determines what you get
- Currently you can retire at normal retirement age (between 66-67 depending on when you were born) and receive full benefits.
- Retire between 62-65 and receive a reduced benefit.
- Continue working and delay the receipt of benefits, and get a bonus for each year of work past normal retirement age, up to age 70. “Delayed-retirement credits” currently amount to 8 percent annually in order to encourage later retirement.
Changes in your monthly benefits
Your monthly Social Security check may change to reflect the following:
- Cost-of-living increases.
- Eligibility for disability benefits after retirement, but before you reach normal retirement age.
Make the most of your benefits
You must apply for Social Security benefits.
- If you are eligible for both your own retirement benefit and your spouse’s benefit but your spouse’s benefit is greater, Social Security will pay your own benefit first, then add on a portion of your spousal benefit to equal the higher amount. Remember to apply for retirement benefits a few months before you want them to start. Some time is required to process all the paperwork, including your Social Security number, proof of age and evidence of recent earnings (W-2 forms from the last two years, or, if you’re self-employed, copies of your two most recent tax returns).
- Reconcile your Social Security earnings report with your own records at three-year intervals. Report any discrepancies.
- Bear in mind that “earnings limitations” (which change each year) may limit the amount you may earn while still receiving Social Security benefits. Those limitations end when you reach normal retirement age.
- Keep Social Security records up to date if you change your name, in order to have your earnings credited properly.
Regardless of your Social Security options, think of Social Security as only a small percentage of your total retirement plan and set aside a portion of your income on a regular basis. Saving and investing for your own retirement nest egg is a must. Working with a financial planner who specializes in retirement-income planning can help you determine how to best coordinate your Social Security filing strategy with your other retirement-income sources and investment assets.
Jeremy R. Gussick is a CERTIFIED FINANCIAL PLANNER™ professional affiliated with LPL Financial, the nation’s largest independent broker-dealer.* Jeremy specializes in the financial planning and retirement income needs of the LGBT community and was recently named a 2015 FIVE STAR Wealth Manager as mentioned in Philadelphia Magazine.** He is active with several LGBT organizations in the Philadelphia region, including Delaware Valley Legacy Fund and the Independence Business Alliance, the Philadelphia region’s LGBT chamber of commerce. OutMoney appears monthly. If you have a question for Jeremy, you can contact him via email at [email protected] Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
1Source: Social Security Administration, Fast Facts & Figures About Social Security, 2015.
*As reported by Financial Planning magazine, 1996-2016, based on total revenues.
**Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers.
This article was prepared with the assistance of Wealth Management Systems Inc. The opinions voiced in this material are for general information only and are not intended to substitute for specific tax or legal advice, or to provide specific recommendations for any individual. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Please consult me if you have any questions.
Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscribers’ or others’ use of the content.