Are you thinking of retirement? If so, you are not alone by any means as at some point we all hope will retire and enjoy our golden years. But what do you do about Social Security and how much do you need to save? That is something you may want to consult a financial planner about to get an objective perspective. But it is not rocket science and if you know something about Excel you can get a good start on your situation yourself.
Unless you are declared disabled, you can start collecting Social Security at age 62 or as late as age 70. Now you need to understand what these ages mean to the average person. For someone born 1937 or earlier their full retirement age is 65, and for those born after 1960 it is 67, meaning if you were born in between your retirement age is between 65 and 67. I am able to retire at my retirement age of 67 with full benefits if I so chose. Now if I collected Social Security at age 62 I would receive a reduced monthly benefit, and I would be limited to what I can earn while collecting my benefits. Here I recommend talking to a financial planner to have them explain the finer points of what you can and cannot do while collecting early benefits.
So how do the payments differ you are asking? Well, if you are able to retire at age 67 and decide to collect your benefits at age 62 your benefits will be reduced by about 30%. So, if you were scheduled to receive $2,000 a month at age 67, you might expect $1,400 instead. And yes, that is for life not just until you reach your full retirement age and if you elected to wait until age 70 to collect you could expect an extra 24% or about $2,480 a month. Now here is the secret no one talks about and that is no matter when you start collecting your benefits if you live to the average life expectancy you stand to collect the same no matter when you start collecting benefits. But again, you must consider if you plan on working after you start collecting your benefits if you are not full retirement age.
But Social Security better not be your own source of income in retirement. You need additional savings t9o make your retirement a true success. And since companies are not providing pensions as much the savings has been placed squarely on your shoulders. Most of us have a 401(k) like savings plan at work where we save, but there are also IRA’s in which we can save as well. So how much do you need? Well, many think you need enough to take out 4% a year while making about 6%-8% a year still with your portfolio. And yes, that is possible if you have about 50% to 60% in equities and the rest in bonds. Remember, chances are you will live longer meaning your retirement portfolio needs to continue to grow while you are retired. So0 if you are getting $24,000 in Social Security benefits and need $60,000 you will need $1,000,000 saved to take out 4% or $40,000 a year to make the $60,000 you aimed for.
So, as you can see retirement is more than one aspect of saving or income it takes proper planning and preparation for a retirement to be successful in nature. So do not count solely on Social Security to provide for your retirement so start saving now and if you have not started start now. There are catch up provisions for most retirement saving plans such as an additional $1,000 for IRA’s increasing that amount from $5,500 to $6,500 annually. These allow for people who did not save early to have the opportunity to save extra to allow you to retire better.
If you have any questions or comments, please feel free to message me directly or leave a comment here.
