How much income will your assets generate in retirement? Do you know? If you answered no, you’re not alone. A recent study from the LIMRA Secure Retirement Institute (LIMRA SRI) found that more than half of all workers don’t know how their retirement assets will translate into income.1
Creating a retirement projection can boost your confidence in your strategy and help you identify areas for improvement. According to the LIMRA study, almost 70 percent of the surveyed participants said they were more confident in their ability to retire after estimating their income. Of those who hadn’t estimated their income, only 30 percent were confident.1
You can use a retirement income estimate to gain insight into your planning. You may see that you need to increase your contributions or perhaps make a change to your allocation. Below are a few tips on how to use a retirement income estimate in your planning:
Review all your retirement accounts and income sources.
Job change is a common occurrence today. Many people change employers or even industries several times in their career. Each time they do, they may leave a 401(k) account behind at their old employer. It’s possible that you have old 401(k) plans and IRAs spread across multiple employers and financial institutions.
The first step is to gather information from all your accounts into one view so you can analyze your asset balances. Gather statements from your investment accounts. Contact old employers to get information on old 401(k) balances, deferred compensation and other retirement accounts.
You’ll also want to estimate possible income sources. Social Security’s website can provide an estimate of your future benefit. If you’re fortunate enough to have a pension, contact your human resources department or plan administrator for a benefit estimate.
Once you’ve gathered that information, consolidate it in one report. You may need to work with a financial professional to convert your balance information into an income estimate. However, adding up your total assets and income is a good first step.
Project your income.
Once you’ve gathered your balance information, the next step is to project your retirement income. With your Social Security income and pension benefit, you may know exactly what the amount will be. It can be more difficult to project income from an investment account because the distributions aren’t guaranteed* or predictable.
A financial professional can run withdrawal simulations for you that can project your retirement income using different variables. For example, your financial professional may be able to use software to model different rates of return and withdrawal amounts to show you what is sustainable in retirement. That could give you more confidence or help you identify areas for adjustment.
Create a retirement budget.
A budget is always a helpful financial tool, but it’s especially powerful when planning for retirement. You can project your retirement expenses based on your current spending and inflation. You can then compare your estimated spending with your projected retirement income.
If your income exceeds your expenses, you may be on the right track. If there’s a gap, you may need to do more work and consider saving more money to reach your retirement goal.
Again, this is a process in which you may benefit from speaking with a financial professional. They have experience building retirement budgets and can advise you on costs and issues that you may not have anticipated.
Ready to estimate your income and boost your retirement confidence? Let’s talk about it. Contact us today at Retirement Peace Project. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
18184 – 2018/10/22
It’s a situation every child fear, but one that is a painful reality for many families. A parent, after spending decades raising a family, building a career and maintaining a home, no longer has the physical or mental ability to care for themselves. They either need care and support in their home, or they need to transition into an assisted living facility.
According to the U.S. Department of Health and Human Services, 70 percent of Americans age 65 and older can expect to use long-term care at some point in their lives. On average, they will need care for three years, although 20 percent of retirees will need it for five years or more.1
If you’ve already started exploring your care options, you know how costly these services can be. In some cases, you may be looking at thousands of dollars per month for several years. If your parent doesn’t have significant assets or long-term care insurance, that could be a tough bill to pay.
At the same time, you may be preparing for retirement, or you could be newly retired. You might not have the resources or financial flexibility to shoulder some of the burden. While you may want to help your parent get the care they need, you also don’t want to sabotage your own plans.
Fortunately, you have options available. Below are three sources to explore as you plan your parent’s long-term care:
There are a variety of government assistance programs you may want to look into. While Medicare is the most prominent, it often doesn’t cover long-term care costs. The exception is if the long-term care is a direct result of a hospitalization. In that case, Medicare may cover costs temporarily, but it usually isn’t a long-term solution.
Medicaid will cover long-term care almost as long as it is needed. The catch, though, is that your parent will have to be nearly destitute before they’re eligible. To qualify for long-term care, you must have a very low level of cash and few other assets.
Finally, if your parent is a veteran, they may qualify for a program known as Aid & Attendance (A&A) from the U.S. Department of Veterans Affairs (VA). The A&A program is designed to help housebound veterans with their care expenses.
The A&A benefit is paid monthly in addition to any existing military pension. The VA uses a complex formula to arrive at the A&A benefit amount, so you’ll want to consult with the agency for more information.
If your parent needs long-term care, you’ll probably start your planning process by evaluating their bank accounts, pension plans, investment accounts and more. Those are all great resources to consider.
However, there may be other assets that are just as helpful. For example, your parent could have old permanent life insurance policies that have been accumulating cash value in the form of dividends or interest for years or even decades. You could tap into that cash value to pay for care.
Also, look at your parent’s physical assets. It may be difficult to part with a treasured car, art collection or even the family home, but if it gets your parent the care they need, it could be worth it. You could also consider a reverse mortgage to tap into the home’s equity without surrendering the house itself.
Family Care Agreements
If you have siblings, you may find that the most efficient way to provide your parent with care and support is to handle it within the family. This could be especially true if your parent needs help only with basic activities like cleaning, dressing and bathing, rather than with medical issues.
In some families there’s one sibling who may have the time, temperament and skills to provide such care. Of course, it also may not be fair for that sibling to shoulder the entire burden. In that case, you may wish to create a family care agreement. That’s a document by which the siblings who aren’t providing care contribute compensation to the sibling who is handling the day-to-day care and support.
While it may be uncomfortable for siblings to pay one another, that kind of arrangement could also make it more feasible for your parent to stay in their home and to get care from someone they know, love and trust. If you opt for this strategy, make sure you create a formal, legal document and spell out every detail.
Ready to develop a long-term care strategy for your parents and yourself? Let’s talk about it. Contact us today at Retirement Peace Project. We can help your family develop and implement a plan. Let’s connect soon and start the conversation.
You’ve probably spent years, even decades, diligently contributing to your 401(k) plan. You’ve taken advantage of employer matching contributions, managed your investments and possibly even made catch-up contributions after age 50. Now retirement is quickly approaching, and you’ve started to wonder what you should do with your 401(k) after you leave the working world.
Many workers view their 401(k) plan as an accumulation vehicle. That’s a correct perspective while you’re working, but after you retire, the 401(k) may be a distribution tool. If you’re like many retirees, you’ll need income from your 401(k) and other investments to fund your lifestyle. The question is how to best utilize your plan to manage those distributions.
You have a few options available. Before you choose the option that’s best for you, though, you should ask yourself some questions about your risks, concerns and goals. Below are a few questions to consider. Your answers should give you guidance on how best to manage your 401(k) plan after retirement.
Should you roll your 401(k) funds into an IRA?
There’s nothing saying you have to do anything with your 401(k) funds. In fact, in many cases you can leave your funds in the plan indefinitely even if you are no longer with the employer. If you’re comfortable with the investment options and the plan’s service capabilities, you may wish to stay in the plan.
However, you may find that rolling your 401(k) funds into an IRA is a preferable strategy. With an IRA you can often choose from a wide range of investment options, far beyond what is usually available in a 401(k). An IRA may give you the flexibility and capability to find investments that better align with your risk tolerance and growth needs.
What’s the right allocation for you?
When you were working and contributing to your 401(k), you may not have been as sensitive to risk. In retirement, that could change. After all, you will likely be dependent on your retirement distributions to fund your lifestyle to some degree. As you begin to withdraw money, you may become more risk-averse.
The challenge is to find investments that not only limit your downside exposure but also provide growth opportunities. Many investments that have little risk also have little growth potential. That can be an issue, because you will likely need growth to combat inflation and support your withdrawals.
There are some financial tools, such as fixed indexed annuities, that offer protection against loss but also offer upside opportunity. However, those tools often aren’t available in 401(k) plans. To access those tools, you may need to roll your funds into an IRA.
What level of withdrawals should you take?
Another important decision point is in what level of withdrawals you should take from your 401(k) funds after you retire. It’s a tricky decision. Take too little, and you may not have enough to support your desired lifestyle. Take too much, and you may drain your 401(k) funds, putting yourself in a challenging position later in retirement.
It’s hard to determine the appropriate withdrawal level without first developing a retirement budget and a projected income plan. Once you understand your expenses and your estimated income, you can then make an accurate and informed decision about potential distribution
Planning for retirement is always a complex process, but it brings unique issues for singles. Married couples often benefit from joint pension payments and dual Social Security income streams, as well as multiple 401(k) accounts and IRAs. Single retirees may find it more challenging to plan for retirement without the benefit of a partner’s income and assets.
Increasing amounts of Americans are single as they enter retirement. That’s especially true for women. According to data from the U.S. Census Bureau, more than half of all women age 65 and older in 2014 were single.1
If you expect to be single in retirement, you may face unique planning challenges and issues. One of the biggest could be the need for long-term care, which is extended assistance with daily living activities such as eating, dressing and bathing. Long-term care is often provided either in a facility or in the home and can cost thousands of dollars per month. According to the U.S. Department of Health and Human Services, 70 percent of retirees will need some form of long-term care.2
Unless you have a strategy in place, long-term care could drain your retirement assets. Below are a few questions you can ask yourself to start planning for long-term care expenses. If you haven’t started planning, now may be the time to do so. It’s never too early to consider the risk and your options.
Who can assist you if you need care?
Long-term care is often caused by cognitive issues like Alzheimer’s, Parkinson’s or the aftereffects of a stroke. In the beginning stages of these conditions, a spouse may be able to provide much of the necessary support and assistance. That can delay the need for an in-home aide or a move to a facility.
However, single retirees don’t have the benefit of a spouse to help with day-to-day living activities. Consider who could provide assistance if you should develop a cognitive issue. Do you have grown children in the area? What about other relatives, like a sibling or nieces or nephews? Could you rely on friends or neighbors?
Be careful about depending on friends and family for too much help. While they may be willing to pitch in occasionally, you don’t want to be dependent on someone who has other important obligations. Consider that you may need to pay for a full-time health aide if you wish to stay in your home.
Who can make financial and medical decisions on your behalf?
Incapacitation is another big concern in retirement. Incapacitation is the inability to make or communicate decisions about your finances or health care. Again, this is often caused by cognitive issues.
Without any input from you, your relatives or doctors may be forced to make decisions on your behalf. They may make choices that you wouldn’t make for yourself. You can avoid this risk by establishing written planning documents such as a power of attorney or a living will. These legal documents provide exact instructions on how your health and finances should be managed and who should make decisions on your behalf.
How will you pay for care?
A recent Genworth study found that the average room in an assisted living facility cost $3,750 per month. An in-home health aide was more expensive, costing on average more than $4,000 per month.3 How long could you afford to pay those costs out of your retirement assets? Consider that many people need long-term care for several years.
You may want to look at long-term care insurance. You pay premiums today in exchange for long-term care coverage in the future. Coverage varies by policy, but most insurers cover care that’s provided either in a facility or in a home, and will pay some or all of your costs. A financial professional can help you find the right policy for your needs and budget.
Ready to plan your long-term care strategy? Let’s talk about it. Contact us today at Retirement Peace Project. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
Thinking of buying long-term care insurance? That could be a smart decision. Long-term care is likely to be a reality for many retirees. The U.S. Department of Health and Human Services estimates that 70 percent of today’s 65-year-olds will need long-term care at some point in their lives.1
Long-term care could deplete your retirement assets. Many people need long-term care for several years. While care can be provided either in a facility or in the home, both types usually cost thousands of dollars per month. That type of cost can quickly add up.
Long-term care insurance can help cover some or all of the cost, depending on your type of policy. You pay premiums today in exchange for protection in the future. Not all policies are the same, though. There are many different types, and each has its own set of costs and benefits.
Many policies also offer optional riders. These are benefits you can add to your policy for an extra charge. The extra benefits may provide unique protection or fill a specific need. Below are three of the most commonly used riders. Before you buy your policy, consider your needs and which riders may best help you meet your objectives.
If you’re married, a spousal benefit rider could be an important feature. Most long-term care policies have lifetime caps on coverage. These are sometimes expressed as a benefit dollar amount, but other policies have a maximum number of months they will cover.
The spousal benefit combines the maximums of each spouse into one pool. That way, either spouse can use the benefit as needed. Some policies will even increase the maximum coverage to accommodate both people. This benefit can increase the cost of the policy, but it can also provide a valuable level of protection.
Return of Premium
One of the biggest concerns many people have about long-term care insurance is the risk that the policy will never be used. Of course, not using the policy means you didn’t need long-term care, so that’s not necessarily a bad thing. However, you may not feel great about paying premiums for years only to never put the policy to use.
Some policies offer return-of-premium riders. These riders vary by policy, but they essentially return a portion of your unused coverage to your beneficiaries upon your death. Some companies will package this benefit as a life insurance hybrid. These riders are appealing, especially for those who want to leave a legacy. However, the rider can also significantly increase the cost of the policy.
This may be one of the most important riders available. Health care costs are rising all the time. Long-term care costs are no exception. It’s possible that you could buy your policy and then not use it for years. Costs could rise over that time, reducing the impact of your coverage. Inflation protection riders increase your benefit each year to keep up with rising costs. The rider may increase your premium, but it may be worth the extra cost.
Ready to find the right long-term care plan for your needs? Let’s talk about it. Contact us today at Retirement Peace Project. We can help you develop the right strategy for your goals and your budget. Let’s connect soon and start the conversation.
Estate planning should be a component of any financial plan. The term generally refers to the distribution and management of one’s assets after a person passes away. While it may not be pleasant to think about your death, it’s an important exercise. You can create a lasting legacy and eliminate needless stress for your loved ones by developing a strategy. Estate plans usually include a will, trust and other planning documents.
Estate planning isn’t just for financial assets, though. You also may want to include guidance and instructions for your digital assets. For example, your email could contain important or sensitive information. Perhaps you have privacy concerns with your social media accounts. Maybe you have photos on a cloud server that would hold sentimental value for your family. You may even have online investment accounts or income streams that your loved ones may need to access.
While the world may have gone digital, much of estate planning law isn’t quite there yet. There aren’t many laws that govern how digital assets and accounts should be handled after someone passes away. While a will, trust and other tools are accepted as legal documents to manage financial assets, it’s unclear how these documents can be used with regard to digital accounts. Below are a few tips on how to navigate the digital afterlife:
Decide on your objectives for your accounts.
It’s always helpful to clarify your wishes and objectives before you take action. Start by listing your important accounts, such as email, social media, photo and file storage, and more. Then think about what should happen to each account after your death.
Would anyone need access to the account for any reason? Would your family need to search your emails or perhaps access a financial account? Are there any assets like photos or messages that hold sentimental value?
Privacy should also be a concern. Is there anything in your email or social media accounts that you wouldn’t want your family members to see? There may be certain information or communications that you don’t want to share with your children or other loved ones.
Research how various platforms handle inactive accounts.
Most digital companies have policies in place on how they handle accounts for deceased customers. Some are very strict and won’t allow access to anyone else without some kind of court order. Others will allow another person to access the account if it’s been inactive for a prolonged period. Some social media companies will keep your page up as a “remembrance page” with limited access to others.
Do some research to see how your primary account platforms operate after a user’s death. They may allow you to designate a backup person to take over your account or access certain information. If they don’t allow that option, you may need to consider alternative strategies.
Create written instructions for your heirs and loved ones.
Theoretically, you could include account management instructions, usernames and passwords in your will or other documents. That may not be a great idea, however, as those documents are often filed as public record. That means anyone could gain access to your accounts.
Instead, consider using a password management tool to store login info, and then simply have your estate executor provide that info to the appropriate person. You could also store a document with digital asset instructions along with your other important documents, such as your insurance policy, will and others.
Ready to review your estate planning strategy? Let’s talk about it. Contact us today at Retirement Peace Project. We can help you analyze your objectives and all your assets, and then develop a plan. Let’s connect soon and start the conversation.
Every business owner has to make an exit at some point. Some owners leave on their own terms, either through retirement or with the sale of the company. Others, though, exit before they’re ready via disability, health issues or even death. While it may not be pleasant to think about the latter category of exits, it’s important to consider what may happen to your business and your family if you pass away.
Estate planning can sometimes be a complicated process, but it can be even more complex if you’re a business owner. You have to consider how to compensate your family for your years of investment and hard work. You also may have business partners to think about. And you probably want to create a smooth transition for your employees, customers and other interested parties.
Fortunately, with some discipline and proactive planning, you can create a strategy that meets your goals and protects your family and business. Below are a few common mistakes that business owners make when planning their estate. If you can avoid these, you’ll have a good head start on protecting your legacy.
Not planning for probate.
Probate is the legal process of settling an estate. After a person passes away, his or her estate flows through the local probate court. During this process, the court and the estate executor settle all outstanding debts, file and pay final taxes, liquidate assets, notify heirs and handle countless other tasks. As you might imagine, probate can be time-consuming and can generate substantial costs.
Some assets are exempt from probate, but only if they are titled correctly. For example, IRAs, life insurance, annuities and even trusts are exempt from probate because they have beneficiary designations.
Without proper planning, however, your business may have to go through the probate process. That could leave ownership unsettled for months or even years. The court may decide who inherits your business, and it could choose someone you wouldn’t have selected. The legal and administrative fees could also drain your estate assets. You can avoid all this by working with an estate planning professional to develop a strategy.
Not having a buy-sell agreement with your partners.
You may have a co-owner or partners who have helped you finance and build your business. In fact, it may make the most sense for your partners to take over your share of the business after you pass away. After all, they understand the company and have been intimately involved in its growth.
However, that doesn’t mean you should simply leave your share to your partners. You’ll want your spouse, kids and other loved ones to be compensated for your hard work. If you leave your share to your partner, he or she may have no legal obligation to pay your family for your investment.
Instead, work with a professional to establish a buy-sell agreement. This tool governs how your share is transferred and how your family is compensated. These agreements are often funded with life insurance, so you can rest easy that your family will enjoy the fruits of your hard work.
Not choosing a successor in advance.
If you’re like a lot of business owners, you want your legacy to last well into the future. Even after you’re gone, you may want your business to continue providing for your children and grandchildren. And you likely want your company to continue to serve your customers.
For business owners, estate planning isn’t just about handling the financial transition of the company. It’s also about putting the right successor owner in place to lead the company for years to come.
Take time now to think about who the next owner should be. Should it be a child or other family member? What about a key employee? Maybe a competitor or vendor would be best to take over the business?
The earlier you think about these questions, the sooner you can develop and implement a transition plan. It might take years for you to train the next owner. It’s better to start that process sooner rather than later.
Ready to develop your estate plan? Let’s talk about it. Contact us today at Retirement Peace Project. We can help you analyze your needs and goals, and then develop a strategy. Let’s connect soon and start the conversation.
Retirement is a happy milestone, but it can also be a transition that brings difficult issues and challenges. Those challenges can spur tough conversations, especially between spouses. One of the most difficult issues for any couple is facing the prospect of declining health and even death.
It may not be pleasant to think about your own death or your spouse’s death, but it’s a discussion you shouldn’t ignore. It is probable that one of you will outlive the other, perhaps by years or even decades. By discussing death and end-of-life matters in advance, you can ensure financial stability for the surviving spouse.
Below are a few questions to discuss. If you don’t have answers for these questions, it may be time for you and your spouse to discuss them.
What assets, insurance and benefits are available for the surviving spouse?
If you’re like many couples, you and your spouse have accumulated a wide range of assets, benefits, and insurance policies over the years. It’s not uncommon for a retired couple to have employer retirement plans, individual retirement accounts, life insurance policies, pensions and more. The surviving spouse should be aware of all these assets and accounts so he or she can get their financial affairs in order.
Create an inventory of all these assets and accounts. The document should include a title for the asset or policy, the contact information for the firm that manages the asset and an estimate of the asset’s value. You should also include potential income sources, such as Social Security, pension benefits and more.
You probably don’t want your spouse to have to track down accounts and insurance policies in the days, weeks and months following your death. Discuss in advance and create an inventory to help them through this process.
What are your goals for your estate?
Do you and your spouse have an estate plan? Many people believe estate planning is only for the ultra-wealthy, but the truth is that it’s important for anyone who wants to leave a legacy for their loved ones.
Review your current planning documents, including wills, trusts and more. Has anything changed with your situation that would impact your estate and how it is distributed? Are there new children or grandchildren in the family who aren’t included in your current plan? Has the value of your assets increased, making it possible for you to leave more to your loved ones than you had originally anticipated?
You may want to consult with an estate planning professional. They can discuss your goals and objectives with you and then examine your current documents. If needed, they can help you revise or create new documents that better reflect your wishes.
Do you or your spouse have specific end-of-life wishes?
It’s possible that you or your spouse could spend the final days, weeks or months in a hospital or other health care facility. If you or your spouse develop a cognitive issue like Alzheimer’s, you could spend much of your final years in a state of incapacitation, a condition in which you are not able to communicate your own decisions and desires.
Now may be the time to discuss end-of-life care with your spouse. That way, both of you will fully understand the other’s wishes. You will then be able to make more informed decisions regarding each other’s health care should one of you become unable to make those decisions yourself.
Are you and your spouse ready to answer these tough questions? If so, let’s talk about it. We can help facilitate this conversation, and then help you and your spouse become better prepared. Let’s connect soon.
Are you planning to work past traditional retirement age so you can shore up your savings? That could be an effective strategy. Working later in life gives you a few more years to save money, and it also may let you delay Social Security, which can increase your benefit amount.
Many workers have a similar strategy in mind. According to a study from Transamerica, two-thirds of baby boomers are planning to work past age 65. In fact, 15 percent of baby boomers say they will never retire. Why the strong desire to work past traditional retirement age? Most say they will work late into life because of financial reasons. They believe that working longer will help them overcome their retirement savings gap.1
Unfortunately, retirees don’t always get to decide when they’ll leave the working world. In fact, a study from the Employee Benefit Research Institute found that nearly half of all retirees are forced to retire earlier than they had planned.2
As you might expect, a forced early retirement can have a sizable impact on your financial stability. When you are forced to retire early, you lose working years in which you would have contributed additional funds to your retirement accounts and you create additional retirement years that you may have to fund with distributions from your savings.
Do you have a contingency plan in place for forced early retirement? If not, now may be the time to develop a plan. In an ideal world, you would choose the age at which you retire. However, it may be wise to have a plan in place in case you don’t get that option. Below are a couple of reasons why you could be forced to retire early:
It’s natural for health issues to become more prevalent as you advance in age. The truth is, though, anyone of any age can suffer a disability that requires them to take a prolonged absence from work or to leave their career altogether.
In fact, the Council for Disability Awareness estimates that 1 in 4 adults in America will suffer a long-term disability at some point in their career. The group also has found that the average worker estimates having only a 2 percent chance of suffering a disability. The reality is the average worker has a 25 percent chance of suffering a disability.3
The good news is there are steps you can take to protect yourself from the financial burden that comes with disability. You may want to consider an individual long-term disability insurance policy, which could provide you with supplemental income until you reach retirement age. You also may want to create an emergency fund that you could tap into if you’re forced to leave your career early because of health reasons.
No matter what business or industry you’re in, the risk of job loss is always present. The economy changes very quickly. Even in strong economic cycles, businesses look for ways to streamline and become more efficient. What would you do if your position got eliminated and you were unable to find a new job?
Again, there are steps you can take to minimize this risk and the financial fallout. One is to keep investing in your skills and excelling in your career, even if your retirement is approaching. By making yourself more valuable to your employer, you may minimize the risk of being laid off. Also, an emergency reserve fund would be helpful in this scenario as well.
Ready to develop your backup plan? Let’s talk about it. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
For nearly 80 years, Social Security has been a valuable resource for America’s retirees. The program was created in August 1935 when President Franklin D. Roosevelt signed the Social Security Act.1 The law created an independent governmental agency that would provide lifetime income benefits to retirees, the disabled and their surviving spouses and children.
The agency was originally called the Social Security Board but was later renamed the Social Security Administration (SSA). The SSA began collecting payroll taxes in 1937 and paid out the first lump-sum benefit to a Cleveland motorman the same year. He retired one day after paying a 5-cent payroll tax, and he received a retirement benefit of 17 cents.1
In 1940 the SSA started making monthly payments to retirees age 65 and older. While the benefits and eligibility requirements have changed slightly over the years, Social Security operates today much like it did in the beginning. Below are common questions and answers about Social Security and the role it may play in your retirement:
What does Social Security cover?
As of December 2017, Social Security provided benefits to more than 45 million retirees and dependents, over 10 million disabled Americans and dependents, as well as 6 million survivors. Retirees account for 72 percent of benefits; disabled workers account for 16 percent, and the remainder of benefits are paid to survivors.2
Nearly 90 percent of retirees receive Social Security benefits.2 Research indicates that many seniors rely on Social Security for a substantial portion of their income. Among retirement benefit recipients, half of married couples and 71 percent of singles say that Social Security represents more than half of their income.2
When can you file for Social Security?
You can file for Social Security as early as age 62, although you could see a benefit reduction of as much as 35 percent if you file at that time. To avoid a reduction, you need to wait until your full retirement age (FRA) to file. Most people reach their FRA between their 66th and 67th birthdays.3
You don’t have to file at your FRA, though. In fact, you can delay your filing all the way to age 70. Social Security offers an 8 percent benefit credit for every year that you wait after your FRA. If your FRA is 66 and you wait until age 70 to file, that’s a total permanent benefit increase of 32 percent.4
Will Social Security run out of money?
Much has been made of the prospect that Social Security may run out of money. While Social Security won’t disappear anytime soon, it’s true that the program faces some serious financial challenges. In 2020 the SSA will start paying out more in benefits each year than it collects in payroll taxes. That means it will have to dip into the trust fund, which is projected to be depleted by 2034.5
Even after the trust fund is gone, however, the program will continue to collect taxes to fund benefits. Experts estimate that with benefit cuts, perhaps as much as 21 percent, the program could remain solvent through 2090.5
Ready to plan your Social Security strategy? Let’s talk about it. Contact us today at Retirement Peace Project. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
17846 – 2018/7/30