So you're ready to retire soon. That's good news! But do you have a solid plan where your income comes from? Social security is probably a big part of this plan if you're like most retirees. This means that it makes sense to maximize your benefits, or at least understand how these benefits work.
But despite the fact that social security is an important source of pension funds, many early-retirement workers who will soon rely on the program are not clear on some important social security facts. In fact, many older Americans not only do not know the rules of social security, but also have some inaccurate ideas that could cost them.
To make sure that you know the truth and do not derail your pension Low social security benefits because you made assertions based on inaccurate information, here is the reality of some common misconceptions that retirees face.
You'll probably claim social security before you plan
Many people plan to claim Social Security at a later date in their lives than they do be eligible for benefits for the first time. Waiting for Claim may make sense because you'll get greater benefits if you delay-though you'll need to do some simple calculations to make sure the wait is financially sound.
The problem is that you probably can not work as long as you want. According to a recent Nationwide study, prospective pensioners expect, on average, that social security will be claimed four years later than the age at which the youngest retirees applied for benefits. While 66 is the age of most people's thinking they will retire, the reality is, they go down to 62. If you retire at 62, if 67 is your full retirement age – the age at which you receive your standard benefit – You will see as much as a 30% reduction in the monthly income you would have received.
Of course, many retirees can not understand the impact of retirement so early, as only one in three retirees knows their full retirement age and only 12% know the factors controlling how much of their benefits they receive
To make sure you understand how benefits are calculated, look at this comprehensive guide to social security. And to make sure you're ready to retire sooner than expected, you should try to increase your savings – you can use up-front contributions to IRAs or 401 (k) s if you are over 50. You can also investigate whether it makes sense to seek social security benefits instead of old-age pensions when your health requires leaving the workforce before you plan it.
Spending more on your social security than you expected
Pre – Retirees generally expect to spend 15% of their social security benefits on health care, even though four out of ten retirees assume that their social security is not used to cover the cost of care. In reality, Nationwide reports that someone who retired at the age of 62 would spend an average of 64% of social security income on health needs.
Unfortunately, health costs are a major shock to most retirees, especially as medical problems often develop much sooner than expected. 80% of current retirees say that health problems occurred earlier than expected. In addition, almost two in five pensioners say that their health problems disrupt pension plans.
Preparing for serious health problems is difficult. Consider investing money into a Health Savings Account (HSA) during your working life and leaving the money to grow. You can make tax-free contributions and withdraw money tax-free if you use it for covered health expenses, or can withdraw money after the age of 65 – although you would pay taxes on withdrawals if the money is not for care , You are eligible for HSA contributions if you have a high deductible, qualifying health plan.
Your Benefits Will Be Less Than You Think
Social security benefits are based on a formula that adjusts your salary over your career to inflation and determines an average salary based on your highest 35 years of income.
Most people do not understand how the formula works, and have no idea what their benefits will be. Unfortunately, early retirees tend to overestimate rather than underestimate how generous social security benefits are. As Nationwide explains, retirees in the future expect to receive nearly 30% more from the Social Security Institution than the benefits that current retirees actually reap.
You can find out what your expected benefits are at the age of 62, when you reach retirement age and at the age of 70, by checking your Social Security account online. If you intend to retire at a different age, this article explains how to calculate how much your benefits will be reduced or increased by withdrawing sooner or later.
The most important way to plan for smaller benefits is to save more money to make up for the lack of income. Although you want to make sure you get the maximum benefit. This may mean that you For example, you may have to decide whether you can claim social insurance from a spouse's account or whether it makes sense to delay the use of benefits.
Do not let your pension insurance suffer from surprises in social security
After working hard all your life, you deserve to retire with dignity and not spend your golden years. Make sure you calculate as quickly as possible how much income you need in retirement – and find out how much of that social security realistically provides – so you can create a comprehensive savings plan.