While you may think you understand Social Security benefits, there is probably a lot about them that you do not know, according to The Motley Fool in “4 Signs You’re Thinking About Social Security Benefits the Wrong Way.”
Here are some issues you may not know:
Misunderstanding - Social Security will provide all the household income you will need during retirement. We really hope you are not thinking this, but many Americans do. Social Security benefits are designed to replace only 40% of your pre-retirement income. According to most financial advisors, you will need at least 70% of your working income to live on during retirement.
Don’t count on Social Security to provide the lion’s share of what you need. Invest in an IRA or a 401(k), and plan early in your working career. In a perfect world, you should start saving at least 15% of your income, but if you can’t do that at least do something. If you have not done anything yet, then get started.
Misunderstanding - You plan on filing for Social Security benefits at age 65. A study from the Employee Benefit Research Institute found that as many as 70% thought they would start taking Social Security at age 65. However, that line in the sand has moved a lot since your parents took their benefits. Your full retirement age is not likely to be 65. Check the Social Security website for your correct age.
Most people start taking Social Security at age 62, with age 63 being the median age when people claim their benefits. That is usually the result of illness or unemployment, which is not good planning. The problem is, the earlier you begin to claim your benefits, the less you will get on a monthly and lifetime basis. The longer you can keep working and postpone claiming, the better.
What about your spouse’s income and earnings? Married couples have to do some joint planning when it comes to Social Security benefits. If you are eligible for widow or spousal benefits, you may be able to get higher benefits. If your spouse earned more than you, consider whether claiming under your spouse’s work record may bring more money into the household. If you were married for more than 10 years and did not remarry, you can still claim under your ex’s work record.
If you are the higher earner in the household, think about your spouse when it comes to claiming benefits. When one spouse dies, the surviving spouse has an option to either earn widow’s benefits or their own benefits, whichever is higher. However, if you claim benefits early, you have reduced your spouse’s benefits. Will he or she be financially sound after you have gone?
Reference: The Motley Fool (Oct. 7, 2018) “4 Signs You’re Thinking About Social Security Benefits the Wrong Way”