Social Security is only designed to replace a part of a retiree’s income, and the buying power of its benefits has decreased by a third since 2000, according to a report by the Senior Citizen’s League. The cost-of-living adjustments (COLA) used to determine Social Security benefits don’t always accurately reflect seniors’ rising living expenses. And, the services retirees spend the most money on – housing and medical, such as Long-Term care – have increased significantly. On top of all this, inflation can erode your savings. Since inflation rates change every year, it’s hard to estimate exactly how much income you will receive after retirement. But one thing’s for sure, you can’t solely rely on Social Security in retirement.
The best defense is relying as little as possible on Social Security. One way to help try and accomplish this is by delaying benefits: If you start receiving benefits at the earliest possible age of 62, you will receive reduced benefits. If you wait until your full retirement age, which ranges from 65 to 67 depending on the year you were born, you will receive full benefits. If you wait until 70, you receive full benefits plus an additional 32 percent. Also, one spouse can file for benefits when they are of full retirement age, and suspend payments until 70. If they are old enough to receive Social Security, the other spouse can then file for a spousal benefit. This benefit is half of the other spouse’s benefit. However, it’s always important to note that your situation is unique, you have your own personal goals, and so you must have a custom Social Security strategy that works best for you.
If you’re less comfortable relying on a lump sum nest egg rather than a steady stream of cash, an annuity could be a viable option to consider. An annuity can help provide an annual income for as long as you live, and can be transferred to a spouse when you die. It may be a good option if you think you could outlive your savings, or if your spouse will live for a long time after you pass. There are many different types of annuities, so work with a qualified financial professional to make sure you are looking at the ones best suited to your goals and unique financial situation.
Luckily, most say that the immediate existence of Social Security is not in jeopardy, as long as those over 60 remain an active voting block. Proposed legislation tends to exclude those already receiving benefits from being subject to policy changes. While Social Security can help cover expenses in your retirement, it won’t fund your pre-retirement lifestyle: The average monthly payout is about $1,372, and the maximum is about $2,788, to put it into perspective.
While the existence of Social Security isn’t in question, its actual purchasing power relative to major costs in retirement is. You may not know exactly how much income you will need after retirement, or for how many years you’ll need it. Knowing when to file and how to claim your Social Security benefits is crucial, along with determining whether additional streams of guaranteed income, such as an annuity, is right for you in planning for your retirement.
At O’Donnell Financial Group, we want to help you create a solid plan for your retirement. It can be hard to know the ins and out of Social Security benefits and how to create alternative sources of income in retirement on your own. That’s why we’re here to help. Click here to schedule your no cost, no obligation financial review.