Let’s assume for a moment that you are now gone and your surviving spouse must account for all the income she will receive. A common mistake today is if you just assume that your surviving spouse will continue to receive “both” Social Security checks just like during your retirement. However, this is not correct. Your spouse will only receive “one” check from Social Security. In other words, the total Social Security income will be reduced and a good rule of thumb is that your spouse can receive the larger check the two of you had been receiving.
Many pre-retirees are concerned and wondering if they will have enough retirement income when they retire. So how can they begin to improve their situation?
A simple and excellent strategy is to have all debt paid off by the time of retirement. For many people this can be at least $1,000 to $1,500 per month of cash flow improvement. And one of the best ways to possibly accomplish this is to begin years before retirement paying more each month towards your debt. This can allow you to eliminate your debt much faster with the goal of paying it all off before your reach your retirement date. In addition, you may also receive an intangible benefit… the great feeling that you owe no one, and the freedom that comes with this.
One of the best financial planning strategies for Social Security is lost if the husband and/or wife begins taking benefits before their “full retirement age”. Please seek competent professional advice before you or someone you know starts drawing Social Security. There could be strategies available that benefit you if you will stop and consider them “prior to” filing your application…
This is a question many people are struggling with today. And in terms of making the key decision, surveys show many Americans today don’t understand their alternatives. We are finding the smartest path to take depends on many factors. One of the key factors is marital status. Another key factor is one’s age. But when it comes to a retiree making their Social Security decision, several issues make the decision complicated. For instance, quoting T. Rowe Price research, “Retirees have two competing goals: maximizing Social Security benefits, which means delaying benefits to age 70, and minimizing savings withdrawals in the early years of retirement, which means taking benefits as early as possible.”
In short, we strongly suggest retirees get professional help before they make their choice. More specifically–a married couple should seek professional help before the spouse, who has been the “lower wage earner”, starts their Social Security benefits.
In May we blogged about your retirement income stream, specifically the potential benefits of delaying your Social Security if you are able to do so. Did you also know that your Social Security is permanently reduced if you claim your benefits early? Remember, it is important to maximize any source of income during retirement. This includes Social Security, as well as other potential income streams like pensions and annuities.
For those who are willing to wait, or who can work a little longer, there are additional strategies you can consider in order to “maximize” the benefits you receive from Social Security. To help determine this, there are three key factors to consider: 1) how long you are planning to work, 2) your marital status and age differences, and 3) your health and family medical history. By sorting through these key points and working with a professional, you should be able to determine if strategies such as “file & suspend”, “switch strategies”, or “filing a restricted application” can benefit you by increasing the amount you receive over your lifetime. The benefits can be significant.
According to retirement studies conducted by J.P. Morgan, two-thirds of the average American’s retirement income comes from their Social Security and their earnings. And many of these people find themselves having to work longer and retire later. And remember, Social Security benefits only replace 27% of higher incomes (past wages of at least $113,700) and up to 58% of lower incomes (past wages of $20,172) of one’s past wages (Source: 2013 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund).
One simple way for a 60-year old pre-retiree to improve their situation is to delay starting their Social Security income. According to The Social Security Administration each year you wait to draw Social Security you gain an increase of approximately 7%, much like receiving a “raise” in your retirement pay check. And though a few can’t delay, we have found with some adjustments many can wait to begin this benefit until at least their full-retirement age (age 66 if you were born between 1943–1954). This may be a particularly important consideration if a spouse has “good genes” and stands a reasonable chance of living into their 90’s.
To possibly help, remember that the Social Security Administration now provides access to online benefit calculators through their website, www.ssa.gov.
Below is some informative material prepared by Karen DeMasters of Financial Advisor News on 8/16/2012 that talks about retirement views of both pre-retirees over age 45 and retirees. It is apparent that both retirement income and the need for sufficient financial resources are on the top of retiree’s minds. We hope this post finds you doing well and off to the beginning of a good Fall season …
Actuaries Say Retirement Worries are Increasing – More than one-third of pre-retirees over age 45 do not expect to be able to retire, an increase of 6% over the number reported in 2009. That pessimistic view comes from the latest survey by the Society of Actuaries, “2011 Risks and Process of Retirement Survey Report.” The society surveyed 1,600 people over the age of 45, including 800 retirees and 800 pre-retirees.
Of those who do not expect to retire, 45% say it is because they lack the financial resources to do so. Of those with financial concerns, three-quarters of retirees and 87% of pre-retirees say they will need extra income. Fifty-nine percent of retirees and 80% of pre-retirees say they need to build more assets. And 33% of retirees and 61% of pre-retirees say they need to keep employee benefits.
“Current trends in retirement indicate that people may need to work longer than they originally planned,” says actuary and retirement expert Carol Bogosian, spokesperson for the Society of Actuaries.
“Individuals often have a difficult time estimating how long they can expect to live, how much they will earn on their investments and how much they can spend each year to avoid running out of money,” she adds. “In fact, many people are just guessing about how much money they will need in retirement.”
The majority of both pre-retirees (89%) and retirees (77%) also say staying active is a reason to keep working in retirement. However, those who do expect to retire often overestimate the amount of time they will be able to keep working. While half of retirees report they retired before age 60, just one in 10 pre-retirees think they will retire that early. Half of pre-retirees expect to work until at least age 65.
“There is a big gap in the age at which pre-retirees expect to retire and actual retirement ages of those who have retired,” says Bogosian. “This may be partially due to involuntary retirement and health problems. This gap, together with the failure of many people to plan for a long enough retirement period, may indicate significant future financial problems for many.
For those retirees who have continued working, half have found employment with a company other than the one they retired from, while 29% have continued to work for the same company. Twenty-two percent have started their own small businesses or become self-employed. Thirty-one percent of pre-retirees who plan to retire say they will also start a small business.” –Karen DeMasters
Most have heard the phrase “don’t put all your eggs in one basket,” and pretty well understand the wisdom within this statement. But have you taken this a step further and applied it to diversifying your retirement income? We have seen many times that diversification among retirement income planning has been overlooked. And this can be a critical need for a retiree… so consider what some of the sources of retirement income you have in place. Perhaps you can identify with one or more of the following basic sources of retirement income:
Investment portfolio or savings – Income is generated from one’s investment portfolio, which is solely dependent on the stock and bond markets, such as a 401(k) plan, IRA or other accounts which may include mutual funds, individual securities, etc.
Employer benefits – Some still have an employer benefit (such as the Federal or State government, a large corporation, etc.) such as a Defined Benefit retirement plan which will send monthly checks after you retire.
Annuities – Another effective strategy can be variable annuities that offer lifetime benefits without annuitizing (via a Guaranteed Income Rider), which ultimately pays the policy annuitant a monthly income benefit for life, and the beneficiary receives the balance at death.
Rental and/or income property – Working assets that generate a constant flow of income, such as real estate, a trust or other account or inheritance property.
Notes Receivable – Can include private notes that others owe you or even arrangements with another party that can provide a set monthly income.
Timber proceeds – In the case of land ownership, periodically a timber cut or thinning can provided additional cash flow.
Oil/Gas partnerships – Can provide periodic income to the limited partner who assumes no liability beyond the funds they contribute to purchase units in the partnership.
During retirement the best of both worlds is at least stable income, but with some potential to increase over time. It is quite possible diversifying your retirement income may help produce that outcome.