As you approach retirement, you decide when to start your Social Security benefits. That decision affects the amount of benefits you receive, so it’s important to get all the facts.
At its best, Social Security usually provides about one-third of a retiree’s income. So at least two-thirds of your retirement income needs to come from other sources such as personal savings, investments, employer-sponsored pension programs or a 401(k).
How do you decide when to take Social Security?
Starting Social Security payments is a big decision. If you take benefits before your full retirement age (FRA), you will receive a lower payment. But the extra years you would receive benefits may make up for the fact that the payments are lower.
Determining your FRA
Figuring your break-even age will help you determine whether the extra payments you receive by starting early outweigh the higher payments you would receive by starting later.
When will you break even?
Use the Social Security website’s break-even age resource to help decide when to begin receiving benefits. You’ll need your benefit amount at the retirement ages you want to compare. There are a couple of ways to get that information:
Now for the hard part: life expectancy
Once you find your break-even age, you must consider your life expectancy. Are you in good health? What’s your family history for longevity? Do you have dangerous hobbies? These are things that we don’t want to think about, but they should be considered when making this decision.
If you expect to live longer than your break-even age, you may want to consider delaying the start of your retirement benefits. If you don’t expect to reach your break-even age, you may want to consider starting your retirement benefits earlier.
Will Social Security be around for you?
You’ve probably heard that Social Security is in trouble. According to the Social Security Administration, the system can only pay full benefits to retirees until 2034. After that, current payroll taxes can only cover about 79% of benefits.1 The government is considering the following possible changes to avoid a Social Security crisis:
- Increasing the FRA for receiving benefits
- Increasing or eliminating the income wage cap on taxable income
- Increasing Social Security payroll taxes
- Linking Social Security cost-of-living adjustments (COLAs) to different inflation indexes
As Social Security becomes less secure, it’s essential that you plan for your own income in retirement. Take charge of your future security by considering traditional and Roth IRAs, employer-sponsored retirement plans and pensions.