The pandemic has had a whole host of unintended consequences for almost every walk of life … even Social Security.
Retirement planner Beau Henderson, with RichLife Advisors in Gainesville, Georgia, says the biggest trend he has seen during the coronavirus pandemic is that people are being forced to take early retirement. “Because there is so much insecurity in the workplace, with buyouts, layoffs and layoffs, people are more likely to take (Social Security),” he says. “People who did not intend to need retirement money feel the direct impact of it.”
For some, this means taking Social Security benefits earlier than planned. In fact, one of the biggest Social Security dilemmas is when to start taking benefits. Some take it early, because after years of paying in the system, they want their money. Others fear that the fund will run out of money or will cut benefits. There is, however good news for people nearing retirement age, Henderson says.
Will the benefits be reduced?
For years, social security has collected more than paid out. But the system is now paying out more than necessary: the number of retirees is growing faster than the working population and people are living longer. According to the AARP, without changes to the way Social Security is funded, the surplus is expected to run out by 2035, when Social Security will be able to pay only 79 percent of the planned benefits ̵
“The message from people I’ve spoken to is good news for people around retirement age,” notes Henderson. “They make small incremental changes that normally don’t affect the individual who is about to retire. For years, the full retirement age was 65. Now it is 66 to 67 years old, depending on the birthday. The maximum income subject to Social Security tax has increased from $ 137,700 per year to $ 142,800 this year.)
“The caveat is that for the children of people who are retiring, my message to them is different,” Henderson warns. “It will not be sustainable. We need plans for our own retirement because social security will not be the same. “
Do you have to wait to take advantage of your benefits?
While financial advisers recommend that you wait until 70, when you can fully maximize your benefits, few people wait. Most people take Social Security at age 62, well before their full retirement age, effectively reducing their lifetime benefits. But many take it early because they do to have to, not because they want to.
So when should you switch?
“The big decision is when to choose Social Security,” said Rhian Horgan, founder and CEO of Silvur, the retirement planning app. “Between 62 and full retirement age, benefits grow by 8 percent per year. In general, the longer you can postpone it, the more beneficial.
“The way I think about it is: procrastination makes a lot of sense if you are worried about a long life, if your family lives long and you have no other income,” Horgan emphasizes. “A lot of people don’t have a long life, and for most Americans it will be their only lifetime insurance policy.” That is different from 30 years ago, when people had a pension ”.
“Social Security now accounts for about a third of all income received annually by US retirees, or $ 1 trillion in annual benefits,” said The Retirement Solution Hiding in Plain Sight: How Much Retirees Would Earn Through Social Security Decisions to improve. Retirees will collectively lose $ 3.4 trillion in potential income that they could spend in retirement because they claimed Social Security at a financially suboptimal time, or an average of $ 111,000 per household. The average Social Security recipient would receive 9 percent more income when they retire if they made the financially optimal decision about when to claim … “
A few more tips
Taxes: If you’re buying a retirement home or leaving the state, check the taxes, Horgan says. Some states tax Social Security benefits. Florida not. Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia collect state income tax on Social Security benefits to at least some beneficiaries. So if you move from one of those states to Florida, you can see savings.
Consider the big picture: “Don’t just think about social security,” says Horgan. (Social Security accounts for more than 50 percent of their income for many Americans.) “Create a retirement plan. Put your income in two big buckets, regular income (401 (k) s and investments) and guaranteed income, including retirement, annuity and Social Security income. I would like to see a guaranteed income that will cover your essential expenses. “
Rodney A. Brooks writes about retirement and personal financial matters. His column is currently coming in US News & World Report. He has written columns on retirement for The Washington Post and USA TODAY. He has also written for National Geographic, Next Avenue and Black Enterprise magazine. He retired as deputy editor / personal finance and retirement columnist USA TODAY in 2015.
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