Many workers will depend heavily on Social Security for financial support once they retire. While Social Security makes up just one slice of the pie when it comes to retirement income, it tends to be one of the largest.
As Social Security is often a critical part of a retirement portfolio, the decisions you make about your benefits could have long-lasting consequences that impact your quality of life in retirement. Keep the following facts in mind before you make any decisions about your Social Security benefits:
Fact #1: The amount you receive increases the longer you delay benefits.
The Social Security Administration has specific definitions of "full retirement age" currently set between 66 and 67 years old. Many people are not aware that if Social Security is claimed before this age, benefits are likely to be reduced. However, if you delay past full retirement age, up until age 70, you increase your benefit amount. The Voya Retire Ready Index found that 66% of retirees began collecting benefits before age 66. Before you voluntarily claim benefits early, make sure you consider how much it will affect your financial situation in retirement; you could be leaving precious money on the table.
Fact #2: Married couples need to have a joint plan to maximize overall benefits.
One area of Social Security that is often misunderstood or forgotten is spousal benefits. These allow a husband or wife to receive up to half of a spouse's benefits. When taking advantage of these benefits however, don't forget about timing - retiring at different ages can make a big difference in the benefit received.
For instance, when the younger person of a couple reaches full retirement age, he or she can receive their spousal benefits first, thus waiting to receive their own Social Security benefit maximized at the age of 70. By coordinating retirement strategies and waiting until you are closer to age 70 to claim your individual benefits, you and your spouse can significantly boost your combined retirement income.
Fact #3: Social Security is likely not enough on its own to support you in retirement.
Lifespans are increasing, so be sure to consider your ability to support yourself into old age. It's becoming more common for people to reach 100 years old or beyond. According to the Social Security Administration, a man who lives to age 65 today can expect to live, on average, until age 84. For a woman, that age increases to 87 years old. Moreover, about one out of every four 65 year-olds today will live past age 90 and one out of 10 will live past age 95.
Take the time to map out how long your Social Security benefits, savings and other financial assets will allow you to maintain your standard of living in retirement. One strategy is to develop a savings plan for the rest of your working years that focuses on monthly income instead of an overall lump sum.
Consider meeting with a financial advisor and using an online tool like Voya's myOrangeMoney to estimate your expected monthly income in retirement. By projecting monthly income, you will have a much better idea of how much you need to save and when you would need to claim Social Security benefits to maintain your standard of living and cover expected costs.
Fact #4: Start assessing the "when and how" of retirement early, so you have enough time to adjust savings and timing as needed.
If you are mid-career or earlier, retirement may seem far away. But, if you start thinking about when you want to retire and exploring all of your options early, you are in a better position to maximize benefits and move into retirement from a positon of strength.
According to the same Voya study, 88% of workers are concerned about having fewer Social Security benefits than expected. Rather than waiting until the last minute, start thinking now about when you want to retire, how much savings you have and how Social Security will play into your retirement strategy.
Many of us dream of an early retirement. To take this thought out of dreamland, consider a few different potential scenarios. Once you establish a Social Security account on www.ssa.gov, your latest Social Security statement will lay out your estimated benefits at the minimum age of 62, "full retirement age" (66-67), or the maximum age of 70. Use this resource to see how your savings and other financial resources stack up to determine what is realistic and what needs to remain a dream.
With so many options, deciding which Social Security benefits to claim and when to claim them can be confusing. Consider working with a financial advisor to help answer any questions you may have and put together an effective retirement plan that will deliver a sufficient monthly income. If you get organized early, you may have more time to adjust your strategy as needed while maintaining your progress toward a long and secure retirement.
Voya Retirement Coach Jacob Gold is a third generation financial advisor with Voya Financial Advisors, Inc., a broker-dealer of Voya Financial®. He is the author of the upcoming book, "Money Mindset: Formulating a Wealth Strategy for the 21st Century" (Wiley & Sons, September 2015) and "Financial Intelligence; Getting Back to Basics after an Economic Meltdown", which was published in August 2009. Gold is a CERTIFIED FINANCIAL PLANNER™ practitioner and Series 7, 24 and 66 securities registered.
Securities and Investment advisory services offered through Voya Financial Advisors, Inc. (Member SIPC)