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Thayer Partners Blog

Will Social Security Be Enough to Live On?

[fa icon="calendar"] Mar 14, 2016 9:00:00 AM / by Chris Wilmerding

Chris Wilmerding

Will_Social_Security_Be_Enough_to_Live_On.jpgAmericans often worry about their retirement. It’s a known fact that Americans aren’t saving for retirement as they used to, due to higher debt, costly mortgages, little or no wage growth, and a higher cost of living. And as employer-funded pension plans become scarcer in the business environment, most people are forced to fend for themselves. Without adequate savings, many will have to rely solely on Social Security for their retirement income. But will it be enough? 

Social Security remains strong. According the 2015 Social Security Trustee Report, it will be able to pay out full benefits until at least 2034. And after 2034, there is enough money in the Trust Fund to pay 79% of benefits owed, so those close to retirement probably have little to fear. However, even if you receive your full benefits, you might still be short on funds, forced to slash your costs of living and sharply reduce your expectations for a comfortable retirement.

Average Retirement Spending

According to the Bureau of Labor Statistics, the total basic expenses for the average retiree totals up to $33,057. This includes $11,967 for shelter and utilities, $8,214 for transportation, $5,540 for healthcare, and $5,793 for food. So every year, your after tax benefits would need to provide you with at least $33,057 for you to be able to continue affording basic necessities. However, this does not take into account exorbitant healthcare costs due to an illness or disease or bucket list items like international trips or even hobbies that you might want to partake in during your retirement.

How Much Will You Receive?

The amount of benefits you’ll receive is based on a combination of factors, such as how much income you’ve earned over your working life (your highest 35 years of earnings), the age at which you claim your benefits, your marital status, and how well you use the rules of claiming benefits to your advantage. It makes sense to do the right calculations. If you retire early and start collecting at 62 years of age, you’ll receive a minimum of $1,000 a month, for a total of $12,000 a year. If you retire at the full retirement age of 66, you’ll get at least 1/3 more, a minimum of $1,333 for a total of $15,996. And if you retire later, at age 70, you’ll get at least 3/4 more, a minimum of $1,760, for a yearly total of $21,120. Currently, the maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639, for a yearly total of $31,668.

As you can see, the minimum amount you receive from Social Security still isn’t enough to match the basic expenses for the average retiree—let alone luxuries. And your need for income, your desired standard of living, your life expectancy, and your assets must be taken into account when deciding at what age you should claim your benefits.

It usually pays to delay your Social Security benefits until you’re 70 years old--that is in most cases. There are some Social Security collection strategies that show it makes more sense to collect earlier.

Strategies to Maximize Your Social Security Benefits

The numbers above were minimums. If you are due more income Social Security income because you contributed more of your paycheck, you could end up receiving higher benefits if you use a strategy that allows you to maximize the amount you’ll receive. By using some or all of the complicated claiming rules to your advantage, such as rules for spousal benefits and divorced spouse benefits, you can end up making more in retirement. However, there are thousands of rules to consider, and to ensure that Social Security will be enough to live on, you should engage a Social Security expert for help.

Plan Early—Have a Back Up

Regardless of how much you can make from Social Security, you shouldn’t rely solely on this income in retirement. When you plan for retirement early, you can create additional streams of income to fund your retirement—some even tax-free. This can help ensure that you live the comfortable retirement life that you’ve dreamt of, without having to make sacrifices due to lack of retirement income.

 

 

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Topics: Social Security

Chris Wilmerding

Written by Chris Wilmerding

Chris Wilmerding is Principal of Thayer Partners, an independent investment management firm located in Westwood, MA providing financial planning and wealth management counsel to individuals and their families.

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