Tag Archives: Social Security

4 Reasons You Can’t Live on Social Security

My Comments: Well, duh! This headline seems like a no-brainer to me.

Social Security was created as a safety net program 80 plus years ago. This implies you MUST have additional funds so you can pay your bills. With 80 years of expectations now built into the system, it has become ‘normal’ to view it as something more than just a safety net.

These four reasons help paint a stark picture for someone not fully prepared to retire. For those of you just now getting serious about your financial future, please check out my online courses under Successful Retirement Secrets.

by Christy Bieber \ October 24, 2017

Social Security is supposed to take care of seniors in their old age, but it cannot do it alone. If you’re counting on Social Security benefits to be your sole source of income as a senior, you’re almost assuredly going to find yourself in a dire financial situation.

The average monthly Social Security benefit is about $1,368 per month at the moment, and while some seniors receive a higher benefit if they paid more into the system, others receive much less. 

Average monthly income from Social Security alone puts most seniors very close to the federal 2017 individual poverty level of $12,060. Even the maximum benefit — which is very difficult to obtain — nets an annual income of $42,456, which is far below the cost of comfortable living in many larger cities. 

Seniors need much more than a poverty-level income, and most older people even need more than the maximum Social Security benefit. In fact, there are four key reasons why seniors cannot live on Social Security alone, and should make sure they save enough for retirement so they don’t have to.

1. A single unexpected expense could lead to disaster

When factoring in routine expenses like healthcare, food, and housing, the average American senior spends around $3,700 monthly, or $44,600 annually. If you want to live a routine middle-class lifestyle, your entire Social Security check will be eaten up — and then some — even if you earn the maximum in benefits.

If your income from Social Security is just average, your spending will be even more bare-bones. As a result, you’ll need to live in a low-cost-of-living area. Otherwise your entire check could be spent just to pay the your monthly rent. The median monthly rent for a single-bedroom apartment in the top 50 major U.S. cities is roughly $1,234. 

With Social Security either insufficient, or barely sufficient, to cover basic routine costs, saving money for emergencies is difficult or impossible. Close to half of all seniors currently have nothing set aside for an emergency, and you’ll likely fall into this group if you’re trying to live on Social Security alone. Unfortunately, emergencies happen. If your car needs costly repairs, your fridge goes on the fritz, or you have any unexpected expense, you could wind up in debt, unable to pay your bills, and with no savings to fall back on. 

2. Affording healthcare costs could be almost impossible

Seniors living at the poverty level or on a limited Social Security income could face a harder time than young people, because many pensioners have costly medical needs. Unfortunately, contrary to popular belief, Medicare does not make seniors’ medical care free, and older people still need to be prepared for treatment expenditures — particularly for prescription drugs.

Seniors account for 34% of all healthcare spending, and a 2012 analysis estimated senior spending on healthcare at nearly $19,000 per person. The government pays for around 65% of medical expenses for the elderly, and seniors are left to pay for Medigap or Medicare Advantage policies to cover additional costs.

Even with supplementary policies, coverage is not that comprehensive. The Bureau of Labor Statistics reported mean healthcare spending of $5,994 annually among those aged 65 and over in 2016, but seniors with high prescription drug needs could end up spending far more.

If you receive only the average Social Security benefit, then $5,994 per year in medical spending would eat up 37% of your entire annual income. You’d be left with about $10,000 to pay for rent and all of your other expenses. This is nowhere near enough, even if you don’t suffer a serious medical emergency such as a stroke or heart attack.

3. Other costs rise faster than COLA 

Social Security beneficiaries are eligible for an annual cost-of-living adjustment (COLA), which is a small boost in benefits intended to protect their purchasing power from inflation. Unfortunately, COLAs for seniors aren’t actually very effective at making sure that Social Security benefits keep pace with actual costs of living. 

In 2017, seniors received a 0.3% cost of living adjustment. This was actually an improvement compared to 2016, when the adjustment was 0%. In fact, since 2010, there have been three years when Social Security retirement beneficiaries received no raise at all.

While Social Security benefits either rise slightly or not at all — i.e., they can never decrease — COLA increases have not kept pace with the rate of medical inflation in 33 of the past 35 years. Food and housing cost increases have also outpaced Social Security’s meager COLA adjustments. Since prices increase faster than income from Social Security, the spending power your Social Security benefits provide is reduced each year — making living on your benefits even harder as you age.

4. The future of Social Security is uncertain

Social Security benefits are clearly insufficient to live on under the current system — but things could actually get worse. Social Security’s trust fund reserves are expected to be depleted by 2034, and if no steps are taken to fix funding shortfalls, Social Security will only be able to pay 77% of expected benefits. 

Proposals to fix funding shortfalls include raising the retirement age and changing the formula by which cost-of-living increases are calculated to give seniors even smaller raises. Either option would reduce lifetime benefits, even as seniors struggle to make ends meet. This means if you want to achieve financial independence some day, it’s even more important you make a retirement savings plan so you’ll have plenty of cash to supplement Social Security.  

Source: https://www.fool.com/investing/2017/10/24/4-reasons-you-cant-live-on-social-security.aspx


A Retirement Checklist

My Comments: There’s a fundamental difference between strategies and tactics. If you don’t now know the difference, and you realistically plan to retire at some point, then I encourage you to learn and understand the difference.

Too many people get caught up in tactical steps, responding to what they might see on TV or in response to a salesman or saleswoman wondering why their commission is still in your pocket.

In the context of retirement, your first effort is to develop a comfort level with the strategic implications of moving away from the work force and into what we favorably think of as retirement. Only when you (and your significant other) come to terms with how you want the rest of your life to play out should you then explore the various tactical steps that will allow you, hopefully, achieve your strategic goals.

The following checklist is about the best outline I’ve found to help you get where you want to go.

Kelly Henning, CFP  \  July 8, 2016

Clients often ask financial planners, “Will I be OK in retirement?” Before looking at a client’s assets and expenses to answer that question, we ask follow ups such as, “What do you want your retirement to look like?” Each individual’s perspectives on retirement are unique. Some people want to remain in their current house and community. Others wish to downsize and stay in the area close to family and friends. There is yet another group that wants to leave expensive Northeast states and move south or west.

Thus, it’s key to expand on a client’s retirement goals earlier rather than later.

The checklist below illustrates different items to think about as retirement approaches, from ten years before to right after retirement begins. The earlier one starts planning for retirement, the more prepared one should be not only financially, but also emotionally.

5 to 10 Years Before Targeted Retirement
• Brainstorm retirement goals and dreams of what your retirement will look like.
• Think about where you want to live and whether you want to downsize.
• Revisit goals and timeframe annually.
• Obtain annual credit report.
• Pay down mortgages and other debts to strive to become debt-free by retirement age.
• Revisit progress toward achievement of retirement goals, and adjust retirement contributions and/or spending as appropriate.
• Review estate planning needs and update documents, titling and beneficiaries as needed.
• Consider the need for Long Term Care insurance.

1 to 5 Years Before Targeted Retirement
• Attend pre-retirement workshops and/or consider a personal life coach to help prepare for the transition.
• Get comprehensive medical, dental and vision exams while still covered by employer health insurance plans.
• Consider Social Security claiming strategies.
• Request estimates of pension or retiree medical benefits.
• Get educated about Medicare options.
• Revisit estimated budget for income and expenses anticipated in retirement.

6 to 12 Months Before Targeted Retirement

For income tax planning:
• Speak with your accountant about your expected new income bracket and how to plan for it.
• Discuss possible Roth IRA conversion or other tax planning strategies.
• Know if you are eligible for any outside retirement plan contributions.

401(k) or 403(b) plan:
• Plan to max out contributions for the current year.
• Confirm all funds in 401(k) accounts are vested.
• Confirm whether funds are pre-tax only or pre-tax and after-tax.
• Coordinate with wealth manager to keep 401(k) or 403(b) funds in the plan or roll to an outside IRA.
• If rolling to an outside IRA, open new account and obtain account number and custodian address/wire instructions for future deposit.
• If retiring between ages 55 and 59.5, you may want to wait to roll over due to options to take penalty-free withdrawals from your 401(k) in year of retirement or take 72t distributions for at least five years.

Pension benefits:
• Obtain all pension benefits available through current employer.
• Determine whether or not a lump-sum pension option is available and whether it is preferable for you.
• Other qualified and non-qualified retirement benefits.
• Obtain information on all additional plans offered by the company and information on vesting, tax, and transfer of these accounts.

Social Security Benefits:
• Login to http://www.ssa.gov, create an account and obtain a current benefits statement.
• Be sure to complete this step for spouse.
• If divorced, contact Social Security directly at (800) 772-1213 and obtain information on taking benefits as an ex-spouse.
• Coordinate Social Security Analyzer tool with benefits statements to determine your claiming strategy.

2 to 3 Months Before Retirement
• Paid time off: If you have any accumulated sick days, vacation time or other PTO days, determine if/how you will be paid for these days.
• Advise your supervisor and HR representative in writing of desired retirement date.
• Hopefully you’ll agree on a specific date (e.g. first week in January depending on payroll and other items).
• Consider a date which you will be eligible for year-end bonus or other benefits, including 401(k) matches, profit sharing, or stock options.
• Request retirement package of paperwork from HR.
• Depending on the size of your company, HR will generally provide its own packet of paperwork and forms that need to be completed.
• Determine date for exit interview with HR/supervisor.
• Make final decision on all insurance, including medical, dental, vision and life insurance (timing will depend on company policies).

One Month Before Retirement
• Obtain via online or phone all the paperwork to roll your 401(k), 403(b) or other retirement accounts, out of the plan into an outside account, if that’s the choice you’ve made.
• Complete paperwork and contact HR to see if plan administrator signature is required.
• Paperwork will be sent in following retirement date.

One Week Before Retirement
• Confirm that HR retirement package has been completed and all relevant documents are signed.
• Clean-up desk/emails, etc.
• Remove any personal/private information from work email and computer.

Post Retirement
• Complete the 401(k) rollover paperwork, which you should submit following retirement date

There are many decisions to consider as one prepares for retirement, from healthcare options to account logistics. Understanding what should be done and when well in advance of your retirement date can be key to reducing stress in the months and weeks before you stop working. Employers will have deadlines on paperwork submission, some of which are your last day of work or thirty days after. Knowing these deadlines and seeking information in advance is essential. Use all available resources, such as your company’s human resources department and your professional advisors, to help make the transition as smooth as possible.

5 Tips to Increase Your Social Security Check

SSA-image-3My Comments: It may be too late to make changes, but if signing up for Social Security benefits is still on your horizon, some of this WILL help you. (Are you listening Eric?)


By Richard Best | August 16, 2016

When Social Security was introduced in 1935, it was never intended to be a primary income source that could support people in retirement. Rather, its sole purpose was to provide a safety net for people who were unable to accumulate sufficient retirement savings. For the next seven decades, the majority of Americans never gave much thought to their Social Security because of shorter life spans and a reliance on guaranteed pensions. Today, an increasing number of people are starting to pay attention to their benefits, and Social Security planning is becoming a vital element in securing lifetime income sufficiency. Although there are many planning options for receiving Social Security benefits, they can be complex and only apply to certain circumstances. At a minimum, these are some planning tips that everyone should follow in order to increase the size of their Social Security checks.

Work the Full 35 Years

The Social Security Administration (SSA) calculates your final benefit amount based on your lifetime earnings covering your highest 35 years of work history. The SSA totals your earnings of your highest 35 years and averages them by using an average indexed monthly earnings (AIME) formula. If you entered the workforce late, or had periods of unemployment, those years will count as zeroes, which will be included in the formula, bringing down the average. Once you have worked 35 years, each additional year of earnings, will replace an earlier year of lower earnings, which will increase the average.

Max Out Earnings Through Full Retirement Age

The SSA calculates your benefit amount based on your earnings, so that the more you earn, the higher your benefit amount will be. Earnings above the annual cap ($118,500 in 2016 and indexed to inflation each year), are left out of the calculation. Your goal should be to maximize your peak earning years, striving to earn at or above the cap. Some pre-retirees look for ways to increase their income, such as taking on part-time work or generating business income. Unaware of the impact on benefits, some pre-retirees scale back on their work or semi-retire, which can lower their Social Security income.

Delay Benefits

Most people know their full retirement age (FRA) – the Social Security age at which they can receive their full Social Security benefits. For most people retiring today, the FRA age is 66. But very few people know that if they delay their Social Security benefits until after they reach FRA, they can effectively earn an 8% annual return on their available benefits. The benefit amount increases by 8% each year that it is delayed until age 70. That is based on the delayed retirement credits (DRCs) earned for each year that you delay your Social Security benefits.

For example, if you are eligible for a primary insurance amount (PIA) of $2,000, or $24,000, at age 66, then by waiting until age 70, your annual benefit would increase to $31,680. In cumulative terms, you would increase your total benefits from $378,000 received by your life expectancy at age 82 to $411,000.

This example doesn’t account for cost of living adjustments (COLAs). Assuming a 2.5% COLA, your delayed benefit would grow to $38,599 and your total benefit amount would increase to $584,000 by age 82.

Claim Spousal Benefits Early

If you and your spouse are 62 years of age or over, one of you can claim spousal benefits while the other delays benefits until age 70. The spouse receiving spousal benefits can then switch to full benefits after attaining FRA. To be eligible, you must have been married for at least 10 years to your spouse or ex-spouse (whoever is to receive the benefit). This option works best where one spouse earned more money than the other, because the spousal benefit amount is based on half of the full benefit amount of the higher-earning spouse.

Avoid Social Security Tax

If you are planning on supplementing your retirement income by working after you start receiving Social Security benefits, then you need to be aware of the tax consequences. Anywhere from 50 to 85% of benefit payment can be subject to federal taxes. To determine how much of your benefits will be taxed, the Internal Revenue Service (IRS) will add your nontaxable interest and half of your Social Security income to your adjusted gross income (AGI). If that total amounts to $25,000 to $34,000 for single filers, or $32,000 to $44,000 for joint filers, up to 50% of your Social Security income is subject to tax. When that amount exceeds $34,000 for a single filer or $44,000 for joint filers, up to 85% of your benefits is subject to taxes. You can possibly avoid paying taxes on your Social Security income by considering ways to spread out your income from various sources so as to prevent any increases that could trigger a higher tax.