This material was prepared for Dick Ockerlander, LPL Financial Advisor, use.
If you’re counting on Social Security to provide you with a secure retirement, think again. Social Security benefits only account for less than half of today’s retirees’ income. Longer life expectancies and the aging of the population will put an increasing burden on the Social Security system, making your own retirement funding more important than ever.
The exact amount of your Social Security benefit will depend upon the number of years you’ve been working and the amount you’ve earned. Retirement benefits are collectible at any time on or after age 62, but can be delayed until age 70. How much you get depends upon when you retire; reduced benefits are paid if you retire between ages 62 and your “normal retirement age,” as defined by Social Security, while delayed retirement credits apply if you wait until beyond your normal retirement age. In some cases, your children and your spouse may also be eligible for benefits on your account.
Social Security benefits currently represent approximately 37 percent of the aggregate total income of Americans aged 65 and older, according to the Social Security Administration. For future generations of retirees, Social Security may represent a much smaller percentage of retirement income.
A system at risk
When Social Security was established in 1935, the average life span among Americans was 63. Today the average lifespan is more than 78 years, according to the National Center for Health Statistics.
In 1950, 16.5 workers paid retirement benefits for each retiree. By the year 2031, when Baby Boomers will be leaving the workforce in large numbers, the ratio may be approaching two workers to every one retiree. By then, the burden of taxes on each worker may well be unmanageable. This aging of the population has led some experts to predict that the Social Security Old Age and Survivors Insurance Trust Fund may run out of assets by the year 2033, a possibility that makes building your own funds for retirement more important than ever.
How much will Social Security pay?
The exact amount of your Social Security benefit will depend upon your earnings history. You can obtain an estimate of your benefits at the Social Security Administration’s online estimator. You can also call the Social Security toll-free number at (800) 772-1213 and request form SSA 7004, the “Request for Personal Earnings and Benefit Estimate Statement.” Complete the form and send it back. You will receive a personalized estimate of your benefits, plus a statement showing your annual earnings.
How Social Security works
Social Security contributions are paid by you and your employer. Your contributions were deducted from your paychecks since the day you started working and are matched by an equal amount paid by your employer. These contributions pay for the following:
- Retirement benefits – Collectible at any time after age 62 and based on the number of years you’ve been working and the amount you’ve earned. In some cases, your children and your spouse may also be eligible for benefits on your account.
- Survivor’s benefits – A kind of life insurance coverage available to your spouse and dependents.
- Disability insurance – Provides a monthly income in the event you are unable to work due to a disability. Eligibility depends on the number of “credits” you have earned and your age.
- Medicare – Entitles you to medical benefits and coverage, including hospital insurance after age 65. Bear in mind that Medicare is also experiencing funding issues, and the Hospital Insurance Fund could run out by 2024.
Your age at retirement determines what you get
- Currently you can retire at normal retirement age (between age 65 and age 67 depending on when you were born) and receive full benefits.
- Retire between 62 and 65 and receive a reduced benefit.
- Continue working and delay the receipt of benefits, and get a bonus for each year of work past normal retirement age, up to age 70. “Delayed retirement credits” currently amount to 8 percent in order to encourage later retirement.
Points to remember
- Social Security benefits will only account for a small percentage of your retirement income needs.
- For information on your benefits, call Social Security at (800) 772-1213.
- You can choose to receive full retirement benefits at normal retirement age or delay receiving benefits until age 70 and receive additional credit by doing so.
- Remember to apply for retirement benefits a few months before you want them to start. Apply for Medicare before you retire to maintain continuous coverage.
Dick Ockerlander is a LPL Financial Advisor at MidWestOne Bank. He specializes in investments and retirement planning.
MidWestOne Bank and MidWestOne Investment Services are not registered broker/dealers and are not affiliated with LPL Financial.
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