Social Security Retirement: I’ve never felt more secured

It’s no secret that Social Security’s finances are in trouble due to many factors such as longevity, people are living longer than what it was expected when social security was established. As well as not enough people contributing to the fund and more people withdrawing from it specifically the baby boomer generation. We might also highlight that this fund also pays to spouses of eligible retirees who’ve never contributed to the fund to be entitled to  percent of what their spouse is entitled to. For these reasons and others, It’s predicted that by 2034 social security will be fully depleted. This is no news to majority of Americans specifically to those that will become of retirement age after year 2034.

Not only will the fund be depleted by 2034 but the average retired American collecting social security currently  is receiving a small fraction of what they estimated. According to last year survey, it is known that approximately one-fourth retirees  don’t receive in income as much social Security as they expected to receive. People forget to account for medicare premiums which can be a significant percentage of their check. In 2018 the premium for medicare tax are anywhere from $134 – $267 per month depending on your family filing status. So if you were expecting a certain amount in your social security monthly income check be sure to account for this deduction.  So why title this article “Social Security Retirement: I’ve never felt more secured” if there’s nothing to feel secure about with social security you might say. Well, the good news about all of this is that there are options specially if you’re under 45 year of age.

There’s a popular story that comes to mind when I think of the situation with social security and that is the story of a family that owned a cow. The story goes like this: There was a family that lived in the outskirts of a remote village on a small plot of land.  The family owned one cow.  Each day they lived off the milk of the cow.  If there was little milk, they ate little.  It there was lots of milk, they ate well.  The lives of the mother, the father, the children depended on the cow.

One autumn day, a lone traveller stops in the village.  He was hungry.  The family shared their milk.  The traveller was grateful.

The traveller wished to return the favour and help the family.  He didn’t know how to help the family.  He heard that there was a wise man in the village.  He walks over to the home of the wise man.

“I was hungry and the family fed me.  I would like to help them.  How can I help this family?”

The wise man said “Kill the cow.”

“Kill it?  How can that help them?  They depend for their lives on that cow.”

The wise man repeated “Kill the cow.”

The traveller was nervous about following such strange advice,  but the reputation of the wise man was such that he went ahead and killed the cow.

A year later the traveller happened to pass again through the village.  He noticed new shops and a thriving market.  He saw a new hotel that provided beds and food to the travellers who came for the market.

The traveller entered the hotel.  Behind the bar he found the eldest son of the family of the cow.  The man was standing tall, smiling and happy.  The traveller greeted him and asked “What happened?”.

“We lost our cow.  There was no milk.  We had to go out and do something to eat.  We set up a small market, it grew.  We set up this hotel, it is growing.  Without the milk from our cow, we had to try new things.”

Silently to himself, the traveller reflected on the power of the wise man’s words.  “Kill the cow.”

It’s believed the same thing has happened with middle income America. We have depended on social security to be our be all for retirement income. We have neglected to maximize our employer sponsored deferred compensation plans, we have turned the responsibility on the government to take care of our income needs when we retire. We forget that the USA is not a socialist country (yet). We’re still considered a capitalist country where we rip what we saw. Where we each are the architects of our future.

Misconceptions about Social Security

The payments I’ve made into social security are growing on its own individual account and growing an interest and will be ready for me to withdraw when I retire at the age of 65

This cannot be a more untrue statement. The reason why we’ve become so complaisant is because a lot of Americans are still thinking that this is the current way social security is designed. It’s simply not true.  Social security pays out their retirement income checks just like any other annuity company pays out their annuity check it’s all based on assumptions that there will enough people actively contributing into the fund on an on-going basis to be able to pay out the ones in retirement mode at any given time. Except that annuity companies have the financial backing to sustain the demands of their population and they also modify contracts for new applicants as demographic changes to be able to remain sustainable. On the other hand social security has been collecting 12.4% from our wages half by the employee the other half by the employer for many years without making adjustments as the demographic changes. This puts the fund at a vulnerable position for future payees since it doesn’t make adjustments periodically to keep the account in a healthy standing.

A second misconception is that once retired the checks will be equivalent to the last salary earned.

This is also not true. Especially if you’re a high income earner. According to AARP “in recent years, high-wage earners ($72,138 and above) had about 35 percent of their working income replaced by Social Security, while low-wage earners ($20,289 and below) had more replaced, about 57 percent” Social security takes the average of the highest 35 income paying years and then it gets put through a formula after that they determine the PIA Primary Insurance Amount.

Alternative to Social Security Retirement

The number one thing a retiree wants during their years of retirement is peace of mind that their retirement checks will come in consistently during the same time for the same amount if not more every month.  That’s why social security has been the vehicle many people relied on for years. As we discussed since it’s not at reliable anymore. Lets’s look at some of the alternatives that can gives us that consistent check during our retirement years.

Start an Annuity

An annuity is a contract bewtween an individual and an insurance company. Although there are many types of annuities one that is very popular is that an individual can choose the type that is sey-up to defer taxes during the time of growth. The individual who owns the annuity will have to pay taxes at a later date during the time of withdrawals.  Other types of annuities can be used for individuals that have large amount of money from the sale of their house or business or perhaps an inheritance although it’s not limited to those three sources, individuals deposit this money into an annuity to avoid paying gain taxes during the period of growth as well.

Many annuities if designed properly could have a guaranteed income for the rest of your life. So if you put money into it, it will grow until you decide to turn on the income benefit. The down side about choosing an annuity is that if the individual changes his or her mind there are surrender charges. If the annuity has been annuitized it’s not possible to access the lump sum of money accumulated. The individual needs to be aware of the fees built inside the contract. only bad thing is that you’re paying extra fees and such to keep that money in there. And also, one much realize that once annuitized, the money is not able to be gotten to. You’re only guaranteed that monthly payment and that’s it. If you’re looking for growth and income for your life, look for a good mix of mutual funds. They’re your best bet, with a LOT less fees associated with them.

every month It’s a common act of calculating an approximate value of Social Security you are going to get as a few Americans are known about the method to calculate their benefits on monthly basis in Social Security, as said by Nationwide.

No doubt that Social Security is intended to substitute about 40% of the pre-retirement income of the retiree. But the retirees are not actually getting what they are expected to get. In fact, the Social Security has their own way to calculate benefits of the retiree regardless of the income they are expecting. Whether they get more or less than that is expected.

Social Security lets you know the amount of money you are collecting by taking your age as the main consideration. The highest income from 35 years of your work is converted into current dollar rate so that your average income per month is known. Then the amount of your primary insurance or benefits you received at your retirement is calculated. The calculation is processed with various multipliers and you get a specific proportion as the credit of your monthly incomes 35 from various streams

For instance, if you are retiring in 2018; you will get credit for 90% of the income if the monthly income is $895. And if a person’s monthly income lies between $895 and $5397, he will get a credit of 32% only and if the monthly income gets higher as much as above $5397, the credit will go lower to 15% of the income per month. Consequently, more is your income, less will be the credits. This is quite weird and many people think if their monthly income is so high, how high will their social security credits be?

How much Social Security pay to an average retiree?

The average credit per month for an average retiree is $1,404 this year in 2018. The actual amount that a retiree collects is the amount depending on the work history of the employee and the time when you choose to get the benefits.

The 100% benefit of Social Security can only be received if you reach your full retirement age. Your retirement age depends on your year of birth. The full retirement age in 2018 is 66 years and four months. But somehow the age increases gradually by two months until the age of 67 only for those who born in 1960 or after.

The claim benefits will be best at the full retirement age and if someone wants to claim for the retirement benefits before the full retirement age, he/she will not receive complete benefits or will get less benefit. On the contrary, if the person wants to get the benefits after the full retirement age, he will likely to get more than expected full retirement age benefits.

Suppose you are 62 and 62 is the age when you can claim for Social Security but you have not reached the full retirement age. This indicates that your Social Security benefits will be reduced to a certain percentage for each month of claim before the full retirement age. And when you reach the age of 67 i.e. the full retirement age, you will get 70% of the total benefits.

On the other hand, if you delay your claim for Social Security benefits, you will be getting delayed credits for each month you are delaying your benefits after you exceed the age of full retirement at 70. There will be 8% increase in benefits per year. So, if someone claims the benefits at the age of 70 instead of 67 will allow you to get an amount of 124% of the full retirement benefits.

It’s not like that it would be the best decision of choosing to claim for the Social Security benefits at the age of 70. Most probably, people used to claim for their retirement benefits at the age of 62. It’s up to you and more likely depend on your financial condition whether to claim for Social Security at the early age of retirement or after full retirement age. If you are in need of it, you must go for regardless of the increase in percentage. And if you are sound enough financially, you can wait beyond the full retirement age. It also very much depends on the plans you have in that age that helps you take a better decision of choosing for the claim.

Important things to know

Sometimes, it’s not necessary that everything goes as smooth as planned. You may have decided to retire at the full retirement age of 67 but due to deterioration in your health, you have to retire sooner than the planned retirement age. Even there are times when you become jobless at the early retirement age and face financial issues in your personal life due to health and other circumstances. Therefore, it is very important to plan for your retirement savings even for the smallest benefits that you could receive at your retirement age. When you do so, you will be able to be financially strong enough to live a comfortable life in the golden years of your journey of life.

Getting prepared for the future especially for the age where you are sometimes not able to work enough to earn a living is a vital decision of your life. Having prepared for the retirement age make you and your partner live those golden years of your life to the fullest. If you are looking for the best consultants for Social Security and to know more about full retirement age benefits and when you can claim for it, feel free to contact us. Our financial experts are here to assist you in the best possible way they can.