Your 50s are a critical period for retirement planning because if you close on the day you leave your full-time job, you still have time to make adjustments.
Social security benefits may not seem like they require a lot of planning ahead. Finally, you can not even begin applying for them until you are 62, so you might think that there is nothing to do before you have to prepare. However, there are a few moves you need to make now that will be useful to you later.
Image Source: Getty Images.
Decide at what age you want to start claiming benefits
To be eligible for monthly checks that are 100% of the amount you are theoretically entitled to, you must start claiming your full retirement age (FRA), which is age 67 for those born in 1960 or later – whatever means everyone now in the 50s. If you apply for your FRA, the size of your benefit checks will be permanently reduced by as much as 30%. But if you wait until your FRA starts claiming (up to age 70), you will receive your full benefit amount, plus a delayed pension credit of 8% for each year you defer submitting Social Security submissions.
Some people mistakenly believe that if you apply early, the reduction in benefits is only temporary and you will start receiving your full benefit amount once you reach your FRA. In fact, once you start claiming while receiving the same annual cost of living adjustments as other beneficiaries, you are generally locked into those reduced life payments.
Let’s say you are in your 50s, so your FRA is 67. If you were to apply at 62, your benefits would be reduced by 30%. But by waiting until age 70 to claim, you will receive your full benefit amount plus an additional 24% each month.
The average benefit of Social Security in January was $ 1,503 per month. Cut that by 30%, and you lose $ 451 a month – $ 5,412 a year. But add 24%, and you’ll get $ 361 more a month. As Social Security is likely to be a major source of income for you in retirement, it is essential to make this decision carefully.
2. Think about how much of your income will be replaced by Social Security
Social security benefits are designed to replace about 40% of your income in advance, but that’s just a rough guideline. And the question of what share of your expenses that will actually cover will depend on both at what age you start claiming benefits and how much you have retired expenses.
To get an estimate of how much you will receive in benefits, you can create a mySocialSecurity account, with which you can check your statements. The government website will use your actual past income to calculate your probable future income. Just keep in mind that the algorithm makes a number of assumptions, including that you will be claiming at your FRA.
Once you have an idea of how much you can expect to accumulate from Social Security, you will have a baseline to figure out how much additional retirement income you should get from your investments and other resources. And with that data, you can make an informed prediction about whether you are on your way to reaching retirement age with a nest egg enough to meet those needs.
Make a backup plan in case Social Security benefits are diminished
The future of Social Security is uncertain as major demographic shifts occur in this country. The program primarily targets payroll taxes on workers to fund benefits. For many decades, those taxes were more than enough to cover the expenses, and the surplus went into what is known as the Social Fund Trust. Today, however, with the massive cohort of retired baby boomers and people living longer than ever, the amount of money collected each year in payroll taxes is not enough to cover the pension benefits that Americans are .
The good news is that this is where the Trust funds are, and the Administration for Social Security has started taking money back from them to cover the gap. The bad news is that the difference between payroll tax revenue and benefit audit expenses will only widen in the coming years, and the full balance of Trust funds will be expected after 2034, according to the latest projections from the SSA Board of Trustees.
Once the trust funds run dry, the money raised in tax breaks will only be enough to cover about 76% of future benefits – meaning monthly checks can be cut by about 24% if Congress finds no solution by 2034. President Trump is also being pushed to eliminate payment taxes altogether, which could spell disaster for the Social Work program.
Congress may still pass a law that keeps the social security program solvent, but it’s a good idea to have some backup plans in mind, just in case political gridlock on the question leads to a day when it benefits the program – and yourself – should be significantly reduced. It can not hurt to have more in your retirement fund so you are ready for a worst-case scenario.
Social security benefits can go a long way in helping you enjoy a financially secure pension, but it’s important to consider when you plan to claim them, and calculate how much you can rely on them to do for you. . By considering these factors in the decades leading up to retirement, you can make adjustments to your plans as needed, making sure you are as prepared as possible.
