As Ferris Bueller said, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” He was right. Before you know it, the kids are grown and you’re leaving the work life behind and headed into retirement.
Whether your plans include a new residence in Florida or an escape to the mountains where you can finally focus on learning to ski without breaking your hip, it’s a time that’s often filled with potential.
Retirement should be a phase of life in which stress is left behind and the focus is on fun and exploration. However, the pursuit of a stress-free retirement requires the finances to make it all work.
Planning for a stable and successful retirement can be complex. Many people count on the idea of a substantial Social Security check, but that expectation is often set without a full understanding of how it all works.
There’s no need to feel bad if the specifics of Social Security benefits leave your head spinning. You’re not alone. It can be a complicated subject, but taking time to unravel the Social Security program will give you a better idea of the money that you can expect to receive down the line.
Will you ultimately get what Social Security promises? There’s only one way to find out and it starts with digging into the details. Grab your shovels.
The Art of the Estimate
Somewhere along the way, many of us fall under the impression that our future Social Security check will be the direct result of all the years of hard work that we’ve committed to our careers. In some ways, this is true, but in terms of calculating the final amount we’ll see in our bank accounts, it’s not.
When you apply for Social Security benefits, what you will receive will be exclusively dependent on the 35 highest-earning years of your life. Many people don’t realize that these high-earning years are also adjusted to reflect inflation rates, but only at the time of application. Good to know.
The combination of these factors means that accurately estimating your Social Security benefits can be difficult. If you estimate your benefits early in your career, you might end up with more than you imagined, thanks to inflation at the time that you begin to collect full benefits.
On the other hand, it’s really easy to overestimate what you’ll have coming your way. There’s no way to anticipate future periods of job loss or an illness that will lower your income across those 35 years.
It’s essential to realize that estimates are not set in stone. Having other savings accounts in place is an imperative move when you’re looking to counter the effects of Social Security surprises later on.
The Worst-Case Scenario
Millennials have long been under the impression that Social Security will be a thing of the past by the time they reach retirement age. Fortunately, a zero-balance Social Security system isn’t in the cards. That said, some changes on the horizon could reduce the value of your future Social Security check.
Both payroll taxes and a U.S. securities trust fund are part of the greater Social Security system. Payroll taxes start with individuals who contribute from their income. However, Congress has taken time over the past several decades to strengthen the trust fund for the sake of longevity.
Current trends place the trust fund at a depletion rate that bottoms out in 2034. Yes, this sounds a little scary, but the math shows us that even without the trust fund in place, the government would be able to pay out a significant portion of benefits to Social Security participants.
So what portion would we all receive instead? Most expect it to be around 77% without government intervention.
No, this isn’t anywhere close to the 100% of benefits we’ve all earned, but it’s important to have this number in our minds. It gives us all a rough idea of what we should expect from Social Security payouts in the worst-case scenario.
Consider the Past
Nobody likes to look backward. We’re generally taught to look toward the future with hope and leave the past behind.
That said, when it comes to getting the most out of Social Security, you might have to reminisce about your ex, if only for a moment. If you were married for 10 years or more and have remained unmarried since, there’s a good chance that you’ll be entitled to collect Social Security benefits based on your ex-partner’s work history.
For some people, this is an important financial lifeline to be aware of, especially if your ex earned significantly more than you throughout their career and you’re set to earn less than expected through Social Security.
It should be noted that you’ll also only qualify to collect when your ex turns 62, and if you get remarried, you’ll no longer qualify for this benefit at all.
Your Past Jobs
Before you plan on collecting those hard-earned Social Security checks and living the good life in retirement, you’ll want to step back and think about the jobs that you’ve held along the way. Not every job comes with an automatic Social Security pay-in standard, and many of those that don’t contribute are government-based.
If you’re on track to receive a significant pension from a government job you’ve held, chances are that you won’t be eligible for full Social Security benefits. This is to ensure that those who don’t pay into the system can’t reap all the financial rewards it has to offer.
Make Sure to Track It
Social Security benefits come with many financial promises attached, but nothing is certain until that check is in your hand. The only tried and true way to keep up with what you have coming is to track it.
The Social Security Administration provides a website for users to set up a free account to follow their progress in real-time. There are several built-in calculators and estimators on the site to help with more accurate projections for your benefits if you were to collect benefits at various ages.
Assumptions can be disastrous when it comes to your Social Security benefits. You have to be willing to look into things now if you want to avoid unpleasant surprises later.
Keep in mind that your dream vacation home in Florida may just be a few informed estimates away!
Here’s to the Wellness of Your Wallet!