Social security isn’t enough: how social security fits into a well-rounded retirement plan - Webster Bank (2024)

FAQs

How does Social Security fit into retirement planning? ›

The Social Security Retirement benefit is a monthly check that replaces part of your income when you reduce your hours or stop working altogether. It may not replace all your income so it's best to identify other ways to pay for your monthly expenses as you age.

How Much Social Security Might You Expect? Social Security checks recently have averaged around $1,831, with maximum benefits at full retirement age capping at $3,627. For many, this is well below their average monthly earnings and often insufficient to cover monthly expenses, especially with rising inflation costs.

The Importance of Planning Ahead

“This is not a decision you can just shelve until you are 61,” Orman wrote. “If you haven't made plans to delay claiming your Social Security at that point, chances are you will just go ahead and start at 62. It takes planning to be able to delay starting to collect your benefit.

A plurality of older Americans, 40.2 percent, only receive income from Social Security in retirement. Roughly equal numbers of older Americans receive income from defined benefit pensions as from defined contribution plans.

One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.

The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67.

But even if you never worked and therefore don't have an earnings record, you're not necessarily out of luck. If you're married (or were married) to someone who's entitled to Social Security, you can collect spousal benefits equal to 50% of your husband or wife's benefits at full retirement age.

Contributing to an employer-sponsored 401(k) or individual retirement account (IRA) while you're still working may also help increase the money you have available in retirement. For 2024, you can contribute up to $23,000 to a 401(k).

The primary problem is that Social Security now encourages most individuals to retire in late middle age when the nation needs their talents. About one-quarter of a century of support is now provided to the longer living spouse of a typical couple who retire.

Most financial experts recommend waiting to claim Social Security. Dave Ramsey said you can claim Social Security at 62 if you're going to invest every dollar. Most retirees can't do this, and many shouldn't even if they can, because investing money you're going to need really soon can be too risky.

What is the Social Security 3 year rule? ›

They can get benefits if you have credits for 1 and 1/2 year's work (6 credits) in the 3 years before your death. If you are receiving retirement or disability benefits at the time of your death, we will pay your survivors based on that entitlement.

Living on Social Security alone is not only possible, but many retirees already accomplish that very feat every year. While the lifestyle associated with Social Security income isn't exactly luxurious, it doesn't have to equal rice and beans for the rest of your life, either.

Roughly one in seven Social Security recipients ages 65 and older depend on their benefits for nearly all their income, according to an AARP analysis. Unable to maintain the lifestyle of their working years, they trim their already trim budgets, move into smaller homes, or rely on the kindness of relatives to get by.

Social Security tax FAQs

Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.

If you have no record of paying into the system, you will not receive payouts. If you have not reported income and evaded taxes for a lifetime, then you will receive no Social Security benefits.

Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.

Social Security integration is an employer practice related to the calculation of the retirement benefits employees receive from a defined benefit (DB) retirement plan. Under integration, the employer subtracts a percentage of the worker's Social Security from the amount paid by the DB plan.

Most of our beneficiaries are retirees and their families — about 52 million people in September 2023. But Social Security was never meant to be the only source of income for people when they retire. Social Security replaces a percentage of a worker's pre-retirement income based on your lifetime earnings.

Q4: Is it true that Social Security was originally just a retirement program? A: Yes. Under the 1935 law, what we now think of as Social Security only paid retirement benefits to the primary worker. A 1939 change in the law added survivors benefits and benefits for the retiree's spouse and children.