by Susan A. Whitesell
Could you live on $16,848 a year? Your Social Security benefit may not be enough for you to live on in retirement.
It doesn’t seem like a lot, but it is the average annual Social Security benefit for all retired workers in 2018. Could you get by on this amount?
Sure, some expenses could be lower once you retire – your mortgage may be paid off, your children may be financially independent, and you won’t have work-related expenses. However, other expenses, such as new hobbies or additional travel, may take their place. And you should anticipate that certain expenses, such as health care, will be more costly as you age. Also, don’t forget the potential for inflation and its impact on the cost of food, utilities and other goods and services.
Social Security is only a safety net
The reality is that it may not be wise to count only on Social Security. If you want a better quality of life in retirement, you have to take responsibility now and focus on building your own retirement savings. You can use the savings you accumulate while working to help make up the difference between what Social Security may provide and what you’ll need to live comfortably when you retire.
Harness the power of compounding
Contributing to your employer-provided retirement plan is an important first step, but it can also be important to keep increasing the amount you contribute over time. The more you put into your plan, the greater your potential retirement income. Long-term compounding may turn even a small contribution increase into a higher plan balance at retirement.
8 percent: The amount your benefit grows per year for each year you put off enrolling after full retirement age (up to age 70)
2.8: The number of current workers for each Social Security beneficiary
95 percent: Percentage of working Americans between age 20 and 49 who have survivors insurance protection for their spouse and children through Social Security
89 percent: Percentage of workers who are protected by Social Security in the event of a long-term disability
6.2 percent: Social Security payroll tax on earnings up to $128,400 in 2018 (the employee and the employer each pay this tax)
A heads-up for the soon-to-retire crowd
People who are close to retiring will want to avoid these mistakes that could have a big impact on their retirement finances.
You’ve got plans, so you don’t want to make mistakes that could derail them. If you’re close to retirement, recognizing potential missteps can help you avoid them.
Investing too aggressively
What if you haven’t saved as much as you’ll need for retirement? You might decide to choose a more aggressive asset mix because it offers the potential for higher returns, but investing aggressively carries more risk – along with the very real possibility that your investments will lose value instead.
If you haven’t saved enough, consider taking measures that don’t involve investment risk, such as working longer, saving more and spending less.
Failing to track your finances
Having a handle on your finances is important at any age, but it’s particularly critical as retirement nears. If you don’t have a budget to track the amount you’re spending, you risk having to dip into your savings to pay the bills at a time when building your nest egg should be a priority. And by checking your net worth once a year, you’ll have a current snapshot of your total financial situation.
Underestimating health care expenses
Don’t even think that Medicare will cover all of them. In addition to premiums for Part B, and possibly Part D, you’ll have deductibles, coinsurance and copays. And dental and eye care typically aren’t covered. Any supplemental insurance you purchase will be an added expense.
Neglecting Social Security planning
Your retirement planning should include figuring out the best time to begin collecting Social Security benefits. You can begin receiving reduced benefits at age 62. Or you can wait until you reach your full retirement age (FRA) to collect full benefits. Your benefit amount will increase for every year beyond your FRA (up to age 70) that you wait to collect, but if you don’t wait until your FRA, your benefit will be permanently decreased.
Keep in mind that you don’t have to claim benefits as soon as you retire. If you have other income sources, you might want to wait and claim a larger benefit later on. Other factors, such as your health and tax situation, should also play a role in your decision.
Contact the author: Kingston Retirement Group of Janney Montgomery Scott LLC, 270 Pierce Street, Kingston; 570-283-8140; kingstonretirementgroup.com. Janney Montgomery Scott LLC, its affiliates and its employees are not in the business of providing tax, regulatory, accounting or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Janney Montgomery Scott LLC is a member NYSE, FINRA, SIPC. © 2018 DST Systems, Inc.