Will Your Social Security Retirement Income Be Enough?
From: www.forbes.com
As more and more Americans are looking ahead to retirement, for some, the reality of not having enough income to pay the bills may be setting in. Even with income benefits from Social Security, many retirees are finding that it is necessary to return to a job or cut back on their living expenses. But, this may not be the way you want to live in your golden years.
If you have retirement dreams of traveling, visiting loved ones or even just relaxing at home, it’s never too early to determine whether or not you’ll be financially secure enough to do that with your current retirement income plan.
Replacing Your Employment Earnings In Retirement
While some retirees are able to replace their earnings from employment, this can be a difficult task, especially if left to do so on your own.
Social Security retirement benefits were never intended to fully replace your prior earnings. In fact, according to the Social Security Administration, this benefit really only compensates for “about 40 percent of an average wage earner’s income after retiring.”
So, unless you plan to reduce your lifestyle and your expenses after you depart from your employer, Social Security retirement benefits probably won’t cover all, or possibly even a majority, of your future living costs.
Three Factors To Keep In Mind About Social Security Retirement Benefits
When it comes to the amount of Social Security you qualify for — or even if you’ll qualify for benefits at all — there are some key factors to keep in mind, starting with how much you can anticipate receiving each month.
Benefit Caps
First, even if you are currently a high wage earner, it won’t necessarily help drastically increase the amount of money you bring in from Social Security. That is because these benefits are capped at a certain dollar amount each year, regardless of how much a person earns.
In 2017, the highest monthly Social Security income payment, even for those who wait until age 70 to start collecting, was $3,538. That equates to $42,456 per year.
Work Credit Requirements
Also, even though many people assume that they’ll have at least some amount of retirement benefits from Social Security, the reality is that not everyone qualifies. In order to be eligible, you and/or your spouse must have enough work credits.
Social Security work credits are earned when you work and pay Social Security taxes. Each year, you can earn up to a maximum of four credits. In 2017, you must have earned $1,300 in covered earnings to get one work credit — that’s $5,200 to receive the maximum four credits for the year. In order to qualify for Social Security retirement income benefits, the total number of credits you need to accumulate is 40.
If you are a non-working spouse of a worker who is qualified for Social Security, or if you have earned less income than your working spouse, you could claim Social Security benefits based on your husband or wife’s work credits. In this case, though, the spousal benefit will only provide you with 50% of the amount of your spouse’s benefit as calculated at his or her full retirement age.
Accounting For Rising Costs Of Living
Social Security also offers an annual cost-of-living-adjustment (COLA), however, this isn’t guaranteed. For example, in 2015, 2010 and 2009, there were no increases at all in Social Security retirement income benefits due to a COLA. And, because the COLA is based on the percentage increase in the U.S. Consumer Price Index, the amount of the increase may not be substantial.
Determining How Much Retirement Income You Really Need
As you move toward retirement, it is important to determine approximately how much income you will need. There are some rules of thumb that state retirees should have 70-80% of their pre-retirement income in order to live comfortably. That, however, may not be the case for many retirees.
That’s because, in some situations, a retiree’s living expenses will decrease when they leave the working world. In other instances, though, a retiree’s cost of living will go up due to increased travel, entertainment or other similar expenses. In addition, the cost of health care and prescription medications will also drastically increase for some.
With that in mind, knowing the type of lifestyle you intend to lead in retirement, as well as your possible health care needs, can be beneficial in coming up with an approximate monthly income requirement.
Also, due to inflation, the prices of the goods and services you purchase will probably increase each year. So, you will also need to factor in a way to not only keep your income flowing but also to increase the amount of that income over time.
Getting Your Retirement Income Strategy In Place
Having enough income in retirement is important. With a customized retirement income plan, you can enjoy your retirement knowing that you won’t have to worry about everyday financial concerns, like having enough money to pay your bills.
Even if you qualify for Social Security retirement income benefits, these may not be enough to pay for all of your basic of living costs. It’s important to put a viable income plan in place that will continue to pay out for as long as you need it to.
