As you get closer to retirement age, you’re probably taking a peak at the Social Security statement. Will it be enough? Most seniors find relying Social Security benefits alone don’t nearly cover all expenses. In fact, some even have to pick up a job again so they can make ends meet. That idea may not bother you now, but when you finally hit the retirement benchmark, you could be singing a different tune. Here are some things to consider about saving now, and what to expect in your post-working years.
About Social Security
We all know a deduction comes out of every paycheck, but many don’t know much beyond that payment. And not everyone has that Social Security deduction, which complicates matters. What may come as a surprise is that in order to deduct your own Social Security, you must have at least 40 credits. How do you get a credit? It’s determined from your annual earnings, and it fluctuates each year. So in 2017, for every $1300 earned, a worker received one credit. The most credits a person can compile per year is four.
There’s a catch, though. Not only do you need the earnings, but you need to pay the Social Security tax on that money. So even if you earn $100,000, if there’s no Social Security tax on that money, it doesn’t count towards your credits.
So once you qualify for benefits, it’s important to know that annual earnings are capped. That means that no matter how much you earn, there’s a point at which percentages no longer matter. The cap amount changes, but in 2017 it was $42,456.
How Much Will You Receive?
Assuming you aren’t a high earner in which the above scenario applies, the Social Security Administration says about 40 percent of the average retiree’s expenses are covered by Social Security benefits. They further explain that these payments are not meant to be the only income for retirees. Supplemental income is expected and required.
It’s more complicated for married individuals who don’t work, or make less than their spouse. Under the Spousal Benefit, these people can claim equivalent earnings to their spouse (but noted as Spousal Benefit). But, when payments come, the non-working partner, or the lower income partner, only gets 50 percent of the spouse’s benefits when they enter full retirement age.
What You’ll Spend
The good news is that under the cost-of-living-adjustment (COLA) the government raises the rates of payment as living costs go up. However, it’s not a good idea to rely on this rise as COLA reflects economic factors, and sometimes either doesn’t go into affect, or is minute. Which is to say, make sure you factor in inflation when you’re saving during your working years, and keep a finger on this in early retirement, too.
Most retirees live off about 70 to 80 percent of their working annual income. That’s a good rule of thumb for determining how much you’ll need to supplement against your Social Security. While expenses tend to decrease when we leave our jobs, it is still possible you’ll spend the same as your working income or even more. Factors to look out for are travel, entertainment, high price purchases, and other new expenses. Your health is going to cost a lot more than it ever did before, and it’s important to consider this, too, for income needs.
Knowing all this, go ahead and book an appointment with an investment advisor. They can help you make a personalized plan that works with both your anticipated Social Security payments, as well as how much to save in supplemental income, and how much you’ll really need to live off in your retirement years.