Social Security benefits can potentially make or break your retirement, particularly if your retirement fund isn’t as strong as you’d hoped it would be. Close to half of baby boomers have no retirement savings at all, according to a 2019 survey from the Insured Retirement Institute, and the coronavirus pandemic may have affected many workers’ retirement plans. In fact, the average 401(k) balance dropped by nearly 20% in the first quarter of 2020, a study from Fidelity Investments revealed, and the average IRA balance dipped around 14%. That means if you’re nearing retirement, Social Security benefits may be more important than ever. And this chart can help ensure you’re making the most of your monthly checks. One of the most important factors to understand about Social Security is how your full retirement age (FRA) affects how much you’ll receive in benefits. Depending on the year you were born, your FRA is either age 66, 67, or somewhere in between: Knowing your FRA is crucial because it will affect how much you collect in benefits every month for the rest of your life. To receive the full benefit amount you’re entitled to, you’ll need to wait until your FRA to begin claiming. By claiming before or after that age, you’ll receive smaller or larger checks. You can begin claiming benefits as early as age 62, but by doing so, your checks will be reduced by up to 30% if you have a FRA of 67 years old. A common misconception is that if you claim early, you’ll only receive smaller checks until you reach your FRA, at which point you’ll begin collecting your full benefit amount each month. However, your benefit reductions are permanent if you claim early, meaning you’ll be receiving smaller checks for the rest of your life. You can also wait until after you reach your FRA to file for benefits, and doing so will result in bigger monthly checks. If you have an FRA of 66, you can receive your full benefit amount plus an additional 32% by waiting until age 70 to claim. Those with a FRA of 67 can collect an extra 24% by delaying benefits until age 70. Keep in mind, though, that you won’t receive any extra money in benefits by waiting past age 70 to claim. So while you can wait longer than that, there’s no financial incentive to do so. The age you should begin claiming benefits will depend on your situation, so the answer will be different for everyone. But there are two factors, in particular, you should consider when determining what age to claim: how much you have in savings, and your life expectancy. The more you have in savings, the less you’ll need to depend on Social Security to make ends meet in retirement. So if you have a robust retirement fund and don’t necessarily need the extra cash from your benefits, you may choose to claim early. Your checks will be smaller, but you’ll also have a little extra spending money earlier in retirement. If you don’t have much in savings, though, you may choose to delay benefits. Those bigger checks can go a long way, especially if your savings run dry a few years into retirement. Next, try to estimate approximately how long you’ll live. When the Social Security Administration calculates benefits, it assumes beneficiaries will be living an average lifespan — or around 85 years. So in theory, regardless of whether you claim early or delay benefits, you should receive roughly the same amount over a lifetime; you’ll either receive smaller checks but more of them, or bigger checks but fewer of them. However, if you live a shorter- or longer-than-average lifespan, you may be better off claiming before or after your FRA. If you have health problems or other reason to believe you may not live into your mid-80s or beyond, claiming early might mean you’ll receive more over a lifetime compared to if you’d delayed benefits. On the other hand, if you are in the best shape of your life and most of your older relatives have lived into their 90s, it might be a good idea to delay benefits. Social Security benefits can have a significant impact on your retirement, so it’s wise to understand the program as much as you can. By knowing your FRA and choosing the right age to begin claiming benefits, you can set yourself up for retirement success. Click here to learn more:
American’s may be making a very costly mistake when planning for retirement. Financial expert and author of ‘Everyday Millionaires’ Chris Hogan said Americans don’t realize that they need money for their own health care during retirement. “Retirement is one of these things that I’m trying to get people to wake up and actually acknowledge that the government is just not going to save the day,” he told FOX Business’ Maria Bartiromo Opens a New Window. on Tuesday. “People believe that Medicare Opens a New Window. is just going to step in and cover all those costs but people don’t understand the out-of-cost expenses of doctors’ visits and even long-term care are things that Medicare won’t cover.” A new study by T-Rowe Price found that nearly 70% of retirees are most worried about the cost of health care as they head into retirement, despite 71% of recent retirees saying they have enough to pay for health care. But Hogan believes that starting to save, utilizing retirement and health savings accounts, including 401(k) and 403(b) plans, can help to ease these concerns. “The more money we have put away,” he said, “the better we prepared we can be for the future.” Hogan also said talking to an insurance professional can “walk you through the nuances” of Medicare coverage and costs. “There are a lot of terms that can scare you,” he said. “But I want you to be informed.” Hogan said there are also things we can do to help ourselves. “With prescription drugs,” he said, “Finding out the generic brand versus the name brand can save us hundreds of thousands of dollars over the span of our retirement.”
For the fifth year in a row, the 60 million people who depend on Social Security have had to settle for historically low increases. For the average recipient the adjustment adds up to a monthly increase of less than $4 a month. Meanwhile, older Americans report that their household budgets jumped substantially last year, despite the lack of growth in their Social Security benefits, according to a new survey by The Senior Citizens League (TSCL). “The gap between benefit growth and retiree costs was particularly pronounced due to rising prices of the most essential items in retirees’ budgets, — medical and food costs,” says Mary Johnson, TSCL’s Social Security and Medicare policy analyst. TSCL sent a letter this month to Congressional leaders calling upon them to enact legislation that would provide a modest boost to Social Security benefits. Johnson discussed with FOX Business these additional findings from the survey, and what you need to know to adjust your household budget. To read that exchange, click here.
Let’s start with the good news. For the more than 60 million people who receive Social Security benefits, they will get a cost-of-living increase in 2017. This is positive considering there was no increase in 2016. Here is the bad news. The increase is expected to be around 0.3 percent, the smallest increase on record. “For the average Social Security beneficiary, that equates to basically $2 to $6 a month, so it’s very small,” says Max Gulker, a senior research fellow at the American Institute for Economic Research. He expects the cost-of-living increase for 2017 to come in between 0.2 percent to 0.5 percent when the government releases its number on Tuesday. While Social Security benefits increase, Medicare Part B premiums will rise too. Medicare Part B covers doctor visits, lab tests and outpatient medical treatments. About 70 percent of people enrolled in Medicare are protected by the hold-harmless provision which prevents Medicare Part B premiums from rising more than the cost-of-living increase in Social Security benefits. For the majority of seniors, this means the hike in premiums will not be more than the cost-of-living increase but it could eat up any increase in benefits. In other words, most Social Security recipients will probably see the increase in their payment go towards Medicare costs so they are not likely to see a big change in their monthly checks. Medicare Part B premiums have been climbing as healthcare costs soar. Back in 1970, the monthly Part B premium was $5.30. This year, the standard monthly premium is $121.80. Meantime, average benefit costs per Part B beneficiary have shot up from about $8 per month in 1970 to more than $460 per month in 2016 according to the Congressional Research Service. The majority of people enrolled in Medicare are protected by the hold-harmless provision but some are not. One group that does not qualify for the provision are those seniors with higher-incomes, making more than $85,000 per person or $170,000 per couple. More than three million of these higher-income beneficiaries could face a big hike in Medicare premium costs next year. “For the three-quarters of people who are under hold-harmless, there is going to be very little increase possible in their Part B premiums so that often spells bad news for the folks who are not under hold-harmless because whatever sort of cost increase in the system has to be made up from that smaller group,” Gulker says. The Medicare Trustees estimate premiums for those not protected by the hold-harmless provision could rise 22 percent from $121.80 per month this year to $149 per month next year. The highest income group could see premiums rise from around $380 per month this year to $467 per month next year. In 2015, Congress stepped in and provided a $7.5 billion loan to the Medicare program which prevented a big spike in Medicare premiums for many higher-income seniors. Gulker says there could be calls from seniors and advocacy groups to get Congress to step in once again to limit the premium increases. He points out, however, Congress can only do this so many years and a longer-term solution is eventually needed.
Not good news…
The majority of Americans save for retirement through their employer’s plan, such as a 401(k). And, the most common 401(k) contribution rate is just enough to take advantage of the employer’s matching contributions. While this is certainly a good way to lower your tax bill and build a retirement nest egg, it may not be enough on its own. With that in mind, here are three things you may not have known about retirement saving that could give you the tools or the motivation to save more.
Just click on the text above to see what Matthew Frankel over at the Fox Business channel suggests. 🙂