There are many Americans who believe that Social Security is a significant part of retirement but it is also important to understand which is the best way to claim those benefit as this can be confusing. Your ideal strategy will depend on a mix of personal factors, from your health outlook to your overall financial situation.
Jean Chatzky, personal finance expert and former financial editor for NBC’s Today Show, is now an ambassador for AARP. She has been a trusted figure in assisting people navigate through retirement planning and she has come through with some sound advice.
Social Security Alone Isn’t Enough
According to the Social Security Administration (SSA), the average monthly benefit for retirees is around $1,976 which totals to roughly $23,712 annually. Even though this may sound like a fair figure, it still is not sufficient to cover rising costs for housing, food, and medical care.
The other issue is that if Congress doesn’t pass new legislation, the Social Security trust funds could be depleted by 2033. That could lead to a 20% reduction in monthly benefits, meaning future retirees may only receive about 80% of what they’ve been promised.
The Case for Personal Retirement Savings
Since these projections have surfaced, Chatzky highlights the importance of taking responsibility for your own financial future. This simply means contributing regularly to savings plans like 401(k)s and IRAs.
Employer-sponsored 401(k) accounts, specifically, is a significant savings system and this can be more beneficial when the employer matches your contributions. This is technically “free money” toward your retirement and can make a difference over time.
When Should You Claim Social Security?
Chatzky offers some significant advice for deciding when to begin collecting Social Security. All those beneficiaries who are single and have good health, it is recommended to delay claiming benefits until close to age 70 if possible. The simple reason for this is that each year you wait beyond your full retirement age (FRA), your monthly benefit grows by approximately 8% each year.
If you’re part of a couple, she suggests that the spouse who earns higher should consider delaying their benefits, especially if either partner is expected to live well into their 80s or beyond. This allows for maximum benefits and also provides a larger survivor benefit if the higher earner passes away first.
Working in Retirement: Not Just About the Money
Many Americans continue working after they’ve started receiving Social Security. Chatzky notes that staying employed can help ease the transition into retirement, while also helping to make savings last longer.
Plan for a Longer Retirement
A common mistake in planning for retirement is misjudging your life expectancy. Chatzky advises planning as if you’ll live at least until age 80, if not longer. With life expectancies rising, many retirees are now spending 20 to 30 years in retirement. That means your savings need to last just as long.
Debt Is the Silent Retirement Killer
In her book Money Rules, Chatzky warns that debt is one of the biggest obstacles to retirement savings. “If you look at the averages, chances are those people down the block (you know, the ones you envy) probably aren’t doing as well as you think,” Chatzky wrote. “In the U.S. alone, an estimated 115 million people have credit card debt. Of them, the average household is carrying $15,799,” she notes.
Statistics show that more than 115 million Americans carry credit card debt. Many adults can’t cover a $2,000 emergency without borrowing or dipping into assets, according to the Consumer Financial Protection Bureau.
Don’t Let Appearances Fool You
Chatzky leaves readers with an important reminder that you should never compare your financial life to any other person. Citizens must not try to keep up with others but instead focus on their own expenses and build their savings.