Why Should You Make Social Security Part of Your Retirement Plan?

Explore the benefits of Social Security, strategies to maximize them, and how it complements other retirement income sources for a comfortable and secure future.

Social Security and Your Retirement: Why It’s Essential for Your Financial Plan

Retirement planning may seem like a maze of numbers and decisions, yet there’s one crucial aspect that you can’t ignore: Social Security. This is not just another bureaucratic program; it’s a prudent financial choice that ensures the security of your financial future in your golden years.

So, whether you’re just beginning your career or you’re getting ready to hang your boots, you should understand how it works and fits into your retirement goals. In this article, we’ll address social security common questions and explore strategies to optimize your benefits.

What is Social Security and How Does it Work?

Social Security is a federal government insurance scheme that was created in 1935 to financially support retirees, the disabled, and survivors of deceased workers. The funds for this program are payroll taxes of employees and employers accumulated over the years

“How do I get Social Security?” is a common query from the financially proactive, and here’s a simple guide: To start enjoying the benefits, you need to earn 40 credits. By 2023, you earn 1 credit on every $1,510 you make.

So, with a simple social security calculation: if you make $1,510 four times a year and accumulate the corresponding four credits every year, you will achieve eligibility for benefits after 10 years, with at least $6,040 yearly.

And if you were wondering, how does social security work? This is it: Like other taxes, a percentage of your income is automatically deducted under taxes, depending on your earnings. So, you owe more if you earn more.

However, for high-income earners worried about how much money the government has taken for social security, there’s a maximum amount on taxes for high-income earners. As of 2023, the cap is $160,200 so even if you earn more than the fixed cap, you’ll only be taxed on a salary of $160,200.

You can start claiming your monthly benefits by age 62. However, if you do, what you receive will be the minimum social security benefits. On the other hand, waiting until when you reach age 70 to take your social security benefits, will give you a larger monthly payment. Understanding these fundamentals will help you make informed decisions about your overall retirement plan.

Working and Social Security

You can start receiving social security while working even before reaching full retirement age. You should note this caveat —there is a set income threshold of $21,240 (as of 2023) so that for every $2 more you earn, your benefit will be less by $1.

But there’s some good news to balance it out. You can collect social security and work full time. And once you reach full retirement age, you’ll receive a higher monthly benefit to compensate for any withheld benefits while you were still working.

Maximizing Benefits

Let’s talk about maximizing those benefits because who doesn’t want to get the most out of their hard-earned contributions? One strategy is to understand claiming options and timing.

If you delay claiming your benefits each year, you earn Delayed Retirement Credits (DRC). These credits boost your social security top payment by 8 percent until you reach the age of 70.

At the retirement age of 67, you would typically receive a monthly benefit of $1,000. If you start claiming your benefits at 62, your minimum social security benefits would be $700. However, if you wait to claim the maximum social security benefit at age 70, it will increase to $1,240 per month.

There’s another strategy called spousal benefits. This is for a stay-at-home spouse with little or no earnings, wondering how the government computes your social security benefits. The good news is that you will be eligible for spousal benefits (half of your spouse’s full retirement age benefits) if you are 62 years old or older, with a child in your care, and have been married for at least 10 years.

Note that claiming the spousal benefit before reaching full retirement age will permanently reduce your monthly benefit. You can also seek professional guidance from a social security specialist tailored to your unique circumstances.

How Does Social Security Income Work?

Even though the program is a financially prudent decision, it is often insufficient, especially as a sole source of income. After all, how much money can I make from social security? In 2022, the average post-retirement pay was $1,657 monthly.

To answer the recurring question, how much will my social security be? Average income earners may see it covering about 40% of their pre-retirement income. But then, what happens when social security runs out? Your ultimate goal should be to work with your retirement consultant to invest and save enough money so that any added benefit becomes a bonus.

If your income is $55,000 and you invest 15% of that income from 35 to 65 years, you could save almost $2 million in your 401(k)s and IRAs for retirement—without a raise.

Nonetheless, we can’t deny the remarkable aspects of Social Security – stability and long-term reliability. Unlike the unpredictable nature of the stock market, its benefits are a steady and consistent source of income throughout your retirement years.

Unexpected Deposits and Addressing Questions

You can call the representatives at 1-800-772-1213 (TTY 1-800-325-0778) or visit a physical office nearest to you if you see social security unexpected deposit or have any questions about social security.

Ensure you familiarize yourself with the procedures and maintain open communication with the administration to protect yourself against potential scams or fraud.

Conclusion

Understanding the importance of Social Security as a retirement income source, the reliance on social security and working to increase overall benefits, and strategies for maximizing your benefits are essential for achieving your financial goals.

And, if you require the services of a financial advisor Oregon has some of the best professionals to help you navigate the maze of retirement planning and ensure you’re optimizing your benefits.

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