If you’re approaching your 65th birthday, odds are you’ve been inundated with documentation and advice about your social security options. It’s crucial to make sure you’re on solid ground with your finances as you get closer to retirement. Hopefully, you’ve already avoided these 5 things you’re doing wrong with social security, but just in case, let’s review:
One Size Fits All
There are dozens of strategies that exist when looking for ways to optimize your retirement. When you take advice from financial professionals, it’s important to remember that there’s not one overall strategy that works for everyone. Developing a personalized approach is a great start. Create a financial plan catered to your needs. Understand it. Make sure your financial plan incorporates the social security payout in the best way possible.
Assuming It Will Cover Expenses
The general rule of thumb is that people entering retirement will need around 70% of their pre-retirement income if they want to maintain their current lifestyle. Obviously, social security will not fully cover your expenses. It’s designed to replace only 40% of your income and even less than that for higher income earners. The only way you would be able to retire on social security alone, would be to cut your budget. And we haven’t even discussed the possibility of medical expenses and elder care that could arise during retirement. To emphasize again: Social security is not designed to fully cover your expenses in retirement.
Not Knowing the Money Payout
You know that you’re eligible for social security, but do you know the exact payout amount? To plan a successful budget for your retirement years, knowing the payout amount is critical. Do you know the difference between the payout in relation to when you retire? Do you know the dollar amount on the statement is pre-tax? These are questions that you need answered to shape your future financial needs.
Not Understanding the Gender Pay Gap
- Fact: Women earn less than men over the span of their careers.
- Fact: Women have longer lifespans when compared to men.
- Fact: Social security benefits don’t consider these factors.
Ideally, these facts should change.
But until they do, women should maximize their retirement needs to minimize the effect these facts will have on their social security payout. Lower lifetime earnings create smaller retirement accounts, which will create a lower payout. One way to increase the payout, would be to retire at a later age.
Getting the Timing Wrong
The biggest thing you’re doing wrong: Failing to determine your best option for when to take social security. While many factors go into this decision, timing is one of most important. The most common mistake by pre-retirees is claiming their benefits too soon. Their payouts are far less than they would’ve been had they waited a few more years. And once you make the decision, you cannot go back.
But these mistakes can be avoided by meeting with a financial professional to go over your options. Get serious about your retirement plans. Develop a strategy for optimizing your social security benefits. Talk with a financial professional from Barnum today.