I was surprised, shocked even, by what I learned in a continuing ed class on Social Security last week.  A large insurance company sponsored a Social Security study; we learned about it in the class and the survey results were a wake up!  This post will cover some of the key things you really need to know about Social Security. That company? Think whistling quarterback.

Let’s try a few questions to see if you can ‘test out’:

1. How many years of earnings are counted in your benefit calculation?
2. True or False – There are different claiming rules if you were born before January 2, 1954.
3. What is your full retirement age (FRA)?

Answers later.

Pig legs!

More precisely, prosciutto on the hoof, so to speak, at an grocery store in Florence, Italy.  Enjoy!

How important is it?

My first surprise, and I believe the insurance company’s also, was that approximately 25% of people think Social Security on its own will be enough for a comfortable retirement.

To avoid a bad retirement surprise, please consider that Social Security as your only retirement income source is too low for a comfortable retirement.  The official Federal poverty level for 2 is $16,460.  Per Business Insider, the average Social Security benefit is $1410/month. A couple who both receive the average benefit (total of $33,840) would be at approximately 200% of the poverty level.

A valuable, extremely underestimated, benefit

52% of respondents did not know that Social Security guarantees income for life.  Good news, it pays for life, and the life of your surviving spouse, if you’re married.

60% (I’m crying here) did not know that Social Security is protected against inflation. Social Security does have COLAS! (The cost of living adjustment kind, not the pop.) The inflation protection is my favorite part!

Honestly, life income with a COLA is a good retirement fact, or surprise if you did not know about it before.

How much per month?

The survey noted that 55% of people say Social Security will be their primary source of retirement income and they over estimate their Social Security benefit – per the survey, future retirees expect $1,628/month, while current retirees actually average $1,257/month. That’s about a $4,400/year difference and that is an amount that can change your lifestyle.

Avoid a bad retirement surprise and head over to my Social Security, order a benefits statement, and use their website tool to estimate your benefit.  Also, figure out how to remember the complex password they require you to have. (My ‘my Social Security‘ password requires both hands, my left little toe, and a llama to input. Not really, but it’s challenging.)

When will I collect?

The survey found that future retirees think they will collect Social Security four years later than the age at which retirees actually commenced their benefits. Collecting later = more money per month, collecting earlier = less money per month.

Avoid a bad surprise and plan when you will collect to achieve the best retirement income you can for your situation.  Many financial advisers have software tools to help you (and spouse if you have one) maximize your benefits.  I found one online that I was comfortable with, but if you’re not really into financial planning, you may want a pro to help you.

The answers

1. How many years of earnings are counted in your benefit calculation?

The highest 35 years, and if you don’t have 35, they average in zeros for the missing years.

2. There are different claiming rules if you were born before January 2, 1954.

True – if you were born before 1/2/54, you can take advantage of ‘file and suspend’.  Born after 1/1/54, no ‘file and suspend’ for you, as there was a bipartisan law change in late 2016 that eliminated this planning strategy.

Note – the law change did not change some claiming rules for people who are divorced but were married over 10 years to the former spouse.  The divorce claiming rules can be advantageous with planning.  If you are in this situation, you definitely need to learn about them and incorporate them in your Social Security planning.

3. What is your full retirement age (FRA)?

It depends! If you were born on or after 1943, it’s at least 66 and if you were born in 1960 or later it is 67.  You can find your FRA on the chart here.

Actions you can take include:

-Register on www.ssa.gov.

-Order your Social Security statement on www.ssa.gov.

-Go to www.ssa.gov and get a benefit estimate for when you believe you will retire.  Use it in your RIP.

-Consider how you will do your Social Security income planning and develop a plan that works best for your situation and constraints. Talk to your trusted financial advisor; the insurance companies they work with have Social Security software available for them to use for you.  Alternatively, check online for Social Security planning software you might like.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here.

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

I was at a gathering last week when a friend came up and asked, “When can I retire?”.  That question gets at the heart of this blog and I would re-phrase it as, “When can I retire with bad retirement surprises minimized?”  Only you can answer the ‘when’ question for you.

Last week I saw a picture of Stephen Hawking which made me think about deriving a complex formula which would tell us when we can retire.  Good news-bad news here – I did not find a formula, but I did work out a checklist that can help you know your readiness to set a retirement ‘when’ date.  Even with the checklist, the only person who can answer the ‘when’ question is you (and your spouse/partner if you have one).

Maybe when do you retire you’ll start cooking Dutch baby pancakes in cast iron!

The ‘When’ Checklist

Walk through the checklist with me, please:

____Financial – I have a realistic retirement budget (spending plan) and know my expenses (needs v. wants).  I have a retirement income plan in place that will support my budget and, ideally, is resilient to stock market, bond market, and inflation changes. I am comfortable with my retirement savings and my emergency fund. (Running out of money would be a really bad retirement surprise.)

____Medical – I have a retirement medical expense plan that takes into account pre-65 and Medicare (65 and on) medical expenses, including insurance premiums, copays, deductibles, and prescription costs.  My medical expense plan is realistic based on my current health and my personal assessment of my health over the next 5-10 years.

____Housing – I have a plan for housing for early retirement, for when I slow down, and for when I need assistance. I have enough certainty in my (our, if with spouse/partner) housing that I know I won’t worry about my home.

____Family – My spouse/partner and family are supportive of my retirement decisions.  (Many people are fortunate enough to have family and having their support for retirement will make it easier and more pleasant. Conversely, if your spouse/partner or family does not approve, your retirement happiness will be at risk, a potential bad surprise.)

____Work – I have considered my work, my colleagues and customers, and my workplace and have decided that I can retire. I will miss my usual work, colleagues, workplace, and customers, but it is time.

____Motivation – I have considered the freedoms and constraints of retirement and weighed them against the benefits and constraints of staying in the workforce.  I am motivated positively toward retirement.  Even a long vacation would not remove my motivation to retire and leave my job.

____Social – I have a plan for retirement social connections which will replace enough of my workplace interactions that I will be socially fulfilled in retirement as I was in my work.

____Mental/Physical – I have a retirement activity plan that will keep me mentally and physically stimulated to the degree I desire.

Not everyone gets to choose.

Plansponsor notes, “a study from Prudential finds 51% of retirees retired earlier than planned. Among those, only 23% retired earlier than planned because they either had enough money to retire, wanted to retire, or were tired of working. Forty-six percent of those who retired earlier than expected did so due to health problems, 30% were laid off from their jobs or offered an early retirement incentive package, and 11% left work to take care of a loved one.”  The study found that half of the ‘earlier than planned’ retirees retired five or more years before they thought they would.

Using the checklist above and having your planning tools, the RIP, RAP, and budget, completed will leave you in the best position you can be if the choice of your ‘when’ is dictated by an external event.

Actions you can take include:

-Complete the ‘when’ check list (with your spouse/partner if you have one). Think about when your ‘when’ date might be.

-If you find you’re not ready to seriously consider ‘when’ dates yet, make note of why.  If the items that need more preparedness are plannable, like the RIP or RAP, work on planning.  Some items, like readiness to leave work and colleagues/customers may just require more time.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here. 

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.