Did you know that on average Social Security will only cover about 20-40% of your overall retirement income? Other sources of income may include a pension, retirement accounts (401(k), IRA, Roth IRA, SEP IRAs), savings accounts and continued work income.
To help you figure out how much you may need and when to take Social Security benefits, let’s look at how your income needs and expenses change during retirement.
1. Fewer Debts: Leading up to retirement, many couples will try to pay down any debts they owe, such as car payments, mortgage and other loans, so they have fewer expenses when they decide to retire.
2. Work-related Expenditures: Once you stop working, FICA taxes will no longer be withheld from your paycheck, and you will discontinue making contributions to your employer’s retirement plan. You will also eliminate work expenses like transportation, meals, clothing, etc.
3. Lifestyle Changes: Since you will no longer be working, you will have different activities that will fill your time. You may decide to travel, volunteer or work at a part-time job.
4. Healthcare: You will sign up for Medicare at age 65 and will need to find other private insurance as well. You may also want to look at long-term care insurance and the cost of doctors’ visits, prescriptions, etc.
5. Taxes: How will your taxes change now that you are retired and taking Social Security? What income bracket will you move into?
When trying to decide when to take Social Security, it’s helpful to sit down and create a budget of your expected costs in retirement. You will want to look at how you can maximize your benefits and your spouse’s. Should you both start taking benefits at the same time? What happens if one of you starts early at age 62 and the other one waits until their full retirement age of 67? A study by the Center for Retirement Research at Boston College saw a steep decline since the mid-1990s of people claiming at age 62 due to the fact that people have longer life expectancies and are working past the traditional retirement age. The average life expectancy for a person who lives to age 65 is 84 for men and 87 for women according to the SSA Life Expectancy Table.
Be sure to visit the Social Security Administration’s website for additional information. You can also register for our free upcoming Social Security Seminar on Thursday, May 25 at 5:30 PM, taking place only online via Zoom. This seminar will review the benefits of taking Social Security early versus waiting until your full retirement age and much, much more. RSVP today to get your Zoom link!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.