3 Crucial Ways to Start Planning Now and Avoid a Social Security Shortfall

Avoid Possible Social Security Shortages in the Future: Retirement planning ranks among the most critical financial steps one should ever care about. Though Social Security serves as a major income source to millions of Americans, issues of future funding shortfalls indicate that relying on it solely would not suffice.

Experts have now predicted that without changes the Social Security trust funds will run out by the year 2035, leading to reduced benefits if no legislative actions are taken. Therefore, it has become absolutely time to start planning for the future financially. Here are three simple yet smart strategies to realize maximum benefits from Social Security and avoid shortfalls.

In fact, planning ahead goes a long way in avoiding future shortfall in Social Security. By working for at least 35 years, delaying benefits until 70, and maximizing your earnings, you can dramatically boost your monthly Social Security payments. Relying only on Social Security is insufficient, so consider 401(k)s, IRAs, and investments for a secure retirement. For more details, refer to Social Security Administration (SSA.gov).

In Understanding Social Security’s Future Financial Prospects:

The Social Security trust fund will face financial strain in the future; this is due to increased life expectancy, low fertility rates, and a decreasing ratio of employed workers to retirees.

1960: 5.1 workers per Social Security beneficiary. Today: 2.8 workers per beneficiary.
Around the year 2035, all the funds in the Social Security trust fund may run out, such that out of benefits scheduled, only about 80% would be payable unless there were additional reforms.
It may seem wise to start planning in advance for the retirement income that might be lost.

Three Strategies To Prevent Social Security Delays Afterwards

Work a Minimum of 35 Years

Why It Makes a Difference:
The Social Security benefit is computed from the 35 years of maximum earnings. If one is less than 35 years old, even with years worked, it will count as zero, thus reducing average earnings.

Action Steps:

Work for at least 35 years of your life so you can receive the maximum benefit.
Stay on the job, if possible, to replace those low-earning years.
Consider part-time work if you plan to retire early.

Example:

Jane worked for 30 years before retiring, which averages her highest 35 years for Social Security, meaning that five zero-income years will lower the amount in her monthly benefit.
Millions of dollars in John’s Social Security check, though, was from 40 years of work, most replacing low-earning years with higher earnings.

Do Not Claim Benefits until Age 70

Why It Counts:

Taking Social Security early means getting less money every month over your lifetime. However, delaying benefits gives you a much higher payment.

• Claim at 62: You’re down 30 percent.
• Claim when you reach Full Retirement Age (67): You’ll get 100 percent of your benefit.
• Claim until you’re 70, and your benefits will increase by a whopping 8 percent a year, totaling 132 percent.

Action Steps:

• Use your other sources of retirement savings (401(k), IRA) to allow you to delay claiming Social Security.
• Plan for those potential healthcare expenses if you are going to retire early, prior to Medicare eligibility at age 65.

Example:

If you claim at age 62, your monthly benefit may be $1,500.
Wait until you reach age 70 before claiming the check, and it might grow to $2,500 a month-that is a $1,000 monthly difference for life!

Stretch Your Income

Why It Matters:

While they are going up on a person’s lifetime earnings, therefore, the more money you have, the more you would have in Social Security benefits.

Action Steps:

Ask for raises and promotions.
Invest in certifications or an advanced level of education to get that higher-paying job.
“Side gigs” that contribute towards Social Security are also excellent considerations.

Example:

If Michael earns $80,000 per year for 35 years, he will have much higher benefits than if he had earned $50,000 for that same amount of time.
Invest in the higher-paying career paths and this can really make a difference with Social Security benefits.

Other Key Issues

How Inflation Affects Social Security
Due to inflation, Social Security payments increase through Cost-of-Living Adjustments (COLA). However, COLAs may not always keep appointments with real expenses, especially for healthcare.

Benefits from Social Security increased

However, healthcare costs tend to increase much faster than general inflation.
Have additional savings for retirement to deal with surprising costs.
Consider long-term care insurance to enjoy protection from healthcare inflation.

Spousal and Survivor Benefits

If you are married, you may actually be entitled to spousal or survivor benefits.

• Spousal Benefits: spousal benefits can be claimed at up to 50% of your spouse’s benefit, while with survivor benefits, a widow/widower can be eligible to get 100% of a deceased spouse’s benefit, if claimed at Full Retirement Age.
• Strategic:
• Synchronize claiming strategies to maximize a household’s income.
• A lower earner may benefit more from spousal benefits since the higher-earning spouse will get his or her own benefit.

Common Mistakes to Avoid

Claiming benefits too early – Can cut significant dollars from lifetime earnings.
Not paying attention to tax ramifications – Up to 85% of benefits can be taxed depending on other income.
Social Security dependency – One should supplement with others’ savings for retirement.

FAQS: