When it comes to retirement income, a question that arises before most people is: how much money is enough?
While the answer to this question is never in black and white, recent headlines on Social Security solvency may inject more fear into this dilemma.
Last week, the Social Security Administration released its annual report on directors. Its new projections pushed back the expiration date of the fund paying pension benefits to 2033, when 76% of promised benefits would be payable.
Lawmakers are expected to look at the program’s creditworthiness at some point. But the question is when. And, when they do, they’re usually expected to include reduced benefits, higher taxes, or a combination of both.
Polls show that many Americans already believe Social Security will be there for them when they retire.
A recent Nationwide poll found that 71% of Americans fear Social Security will run out in their lifetime.
Another survey from the TransAmerica Center for Retirement Studies found that 73% of employees agree with the following statement: “I’m afraid when I’m ready to retire, Social Security won’t be there for me.” “
Many social security experts say this system is unlikely to disappear completely in our lifetime. After all, when the last major reforms were implemented in 1983, the system was only three months away from collapsing.
However, instead of waiting for changes that might affect your value in life in your later years, experts say the best approach is to plan for increasing your retirement income in other ways.
have a plan
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As simple as it sounds, the first step is a retirement plan.
“Most people don’t have a plan,” said Joe Elsesser, a certified financial planner and president of Covisum, a social security claims software company in Omaha, Nebraska.
“To showcase your plan, you have to start with a plan,” he said.
Assess whether you are reasonably on track to receive all Social Security benefits, then ask yourself what would happen if the deduction were made, Elsasser said.
Also, don’t underestimate the positive effects of working a year or two longer or saving more, he said.
Ted Jenkin, CFP and CEO of Atlanta-based Oxygen Financial, said he was asking people to run their plan without using Social Security income. This total tells you how much you will need on the day you retire to maintain your standard of living.
This amount also tells you how much you need to save in your 401 (k) plan or individual retirement accounts to be successful in retirement.
Jenkin said you might not need to maximize your 401 (k) once you get a feel for what you need to save to maintain your standard of living and how much return you need to earn on that money. is required.
Protect your sources of income
Any changes to Social Security are unlikely to affect current or close retirees. But the younger generation can feel a pinch of any change.
As a result, it always pays to delay benefit payments if you’re nearing retirement and in good health, Elsasser said.
By receiving a check very early, retirees can contribute 25 to 30% of that monthly income, depending on the age of full retirement (typically 66 or 67, depending on the year they were born).
Also consider other ways to increase your income if benefits decrease or other unforeseen expenses arise.
Dividend-paying stocks are often seen as a source for this.
However, other investments can also diversify your sources of income, Jenkin said. By getting a rental property now, you can create a passive income stream later. Certainly, these investments are not guaranteed and come with risk, he said.
Plus, investing in or running a business can help generate more monthly income. It can be a side activity that you perform from your home. Or you can become a part owner of a business that makes regular money.
Consider an annuity
While delaying Social Security retirement benefits until age 70 is the best annuity you can buy, Elsasser said, there are times when you might want to consider professional products. where you pay a lump sum and pay back over time. Receive a steady stream of income.
“Annuities can be a good supplement to social security for people who don’t have a lot of guaranteed income,” he said.
But as with many annuity products – and the various motivations for selling them – it’s important to understand and consider what you’re buying.
Be sure to check with an agent who sells you an annuity about the total commissions and fees they will earn by selling the product and how that compares to what they would do by managing your portfolio in such a way. more traditional.
Elsasser said that for many annuities, advisers would compare a similar amount if they just managed your portfolio.
Jenkin said that when used correctly, annuities can help build your pension.