What About Social Security?

There are many people who are concerned about whether Social Security will be available for the multitude of baby boomers born between 1946 and 1964. In just a matter of a few years, the first of the lot will begin retiring. As the population ages, the strain on the Social Security system will become tremendous.

But even if the system is alive and well and doing fine, there’s another problem that must be addressed. You don’t have to be a certified financial planner to realize that Social Security isn’t going to be enough to live on when you retire. It will only provide a minimal portion of your needed retirement income. The program is meant to supplement your income from savings, pensions, and investments. For a typical worker, Social Security will replace about 43% of his or her current income. It’s not very likely that you’ll be able to live on less than half of what you now make, especially in the future when costs will undoubtedly be even higher than they are now.

Studies have shown that if you made minimum-wage earnings all your life, your Social Security benefit will replace about 59% of your preretirement wages. And if you made the maximum wage subject to Social Security taxes, your benefit would be less than 25% of your preretirement earnings. Of course, if you earned considerably more than the maximum amount, your benefit would be an even smaller percentage of those earnings.

The current age at which you’ll receive full Social Security benefits is 65. Your benefits will be lower if you begin collecting them at age 62. If you began at 62, your benefit check would be roughly 80% of what it would be if you had begun collecting at 65. If the official retirement age moves above 65, you’ll get even less than 80% if you start collecting at age 62.

Retiring before age 62 and not collecting benefits at all can also cause other problems. Your Social Security benefits are based on your five highest wage years, so not working in the years prior to retirement age could ultimately lead to a lower benefit check. Assuming your wages are generally increasing and you aren’t exceeding the maximum wages for Social Security purposes, ending your working career early may hurt you down the road, even if you wait until age 65 to start collecting.

In order to see where you are and how much you can count on from Social Security, you should get a copy of your Personal Earnings and Benefits Estimate Statement. This report gives you a listing of the earnings credited to your Social Security account. It also tells you the benefits that are payable on those earnings. You can order your Statement, as well as find lots of valuable information on the Social Security Administration website.

When you receive your Statement, make sure that all of the information on it is correct. And be sure that you’re being credited with all of the money that you’ve earned so that you’ll get all that you’re entitled to in benefits. You’ll need every penny because Social Security alone won’t be enough for most people to live on. That’s why it’s absolutely imperative that you already have a financial plan in place for your later years. If you don’t, get started on it now. Right now.

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