The majority of Americans are hopeful that when they are 65, they can retire and subsequently file for social security benefits, which many people depend on when they get older. Social security benefits, coupled with cash flow from personal savings and pension incomes, are the three primary retirement income sources. Your assumption that you can rely on benefits when you retire may not be correct due to the decrease in the social security trust fund, a rise in FRA, and an unstable pension plan.
In this article, you will see the main things to consider if you want to claim your benefit at 65 and other available alternatives you can take. Suppose you don’t want to claim your benefit at 65?
Social security benefits are not fully secure.
According to a 2020 annual report from the Social Security and Medicare Boards of Trustees, the benefits cash reserves are forecasted to deplete by 2035. However, this does not mean that people will stop receiving social security benefits. It implies that the fund will only pay out in equal proportion as it takes in every year.
One thing you must note is that these projections were made before the pandemic. Therefore, the effect of the Covid-19 pandemic is not considered in the projection. The reduction in trust funds shows that more funds are going out than coming in. If this trend continues, there may be a change in how retirees receive payment from social security.
Social security is a massive source of income for retirees. Therefore, if there is a change in payment, social security may not pay the value of the current benefit to retirees in the long run. Suppose you want to maintain your current standard of living? It would help if you made enough personal savings, which will give you more money along with your corporate pension plan.
The full retirement age (FRA) is rising
Full retirement age (FRA), the age at which you can file for social security, has risen to 65 and nearly 67. Thus, your FRA will depend on your birth year. The rise in FRA may be due to the improving health status and increased life expectancy of seniors. Early filers who start receiving their benefits at 62 will receive a lesser benefit and may not be able to maintain their living standard during retirement. People who delay their social security benefits until they are 70 years old will receive increased benefits because their monthly benefits will increase by 8 percent for every year they delay it beyond the FRA.
Married couples can get a steady stream of payments when the lower-earning spouse claims his/her benefits at 62. At the same time, the higher-earning spouse can delay his/her benefits until age 70. With this, they can get higher payouts due to the eight percent guaranteed yearly increase in social security.
Take things into your hands
Irrespective of the uncertainty with government and corporate retirement benefits, you are responsible for a large portion of your retirement income. This is more accurate if you are still young. You now have to make enough savings into IRAs, employer retirement plans, and brokerage accounts if you want to be financially secure during retirement. Suppose you have enough savings? Your finance will not be affected if you claim your benefits in your early 60s.
If you are nearing retirement, you can get more money through part-time work, and this additional money will cover some of your expenses. Engaging in some paid work will keep you active and also minimizes the stress on your savings.
Social security benefits as an income supplement
In the past few decades, you have the luxury of incorporating many income streams from multiple sources into your financial plan. This is becoming unrealistic because retirees are now facing more risks. Due to this uncertainty, it is crucial to keep enough money for your retirement. If you have adequate savings, you will see social security as a supplement and not a core retirement strategy.
