Social Security: The Retirement Program We Love to Hate by Ken Mahoney www.thesmartinvestors.com
While it’s not perfect, Social Security can play an important role in funding your retirement. The longer you wait to begin collecting, the larger each monthly check will be. But the sooner you start, the more checks you’ll get.
Which is best for you? To decide, you need to consider such factors as whether you’ll continue working and earning past retirement age. If so, Uncle Sam will give with his right hand, and take some back with his left!
An imponderable to ponder is your state of health. In general, the break-even point … when you would have collected more by waiting until your full retirement age … comes at about age 78. If you live longer than 78 years and you collect more by waiting. On the other hand, if you live less than that, you would have been better off collecting earlier!
If you haven’t already received it, contact the Social Security Administration (800-772-1213 or www.ssa.gov) to request your “Personal Earnings and Benefit Estimate Statement.” Fill it out, return it, and in about a month you’ll get an estimate of your future benefits.
The Real Social Security
If you think about it, the idea of retirement has only existed since the mid to late 19th century. Before this time, you worked until you became too old, too ill, or you died. If you were the breadwinner for the family, those who depended on you moved in with other family members for support or ended up living in poverty. Then about 80 or 90 years ago, during the Great Depression, Social Security was created. It paid the primary worker a retirement benefit in a lump sum when they reached the age of 65. In 1940, however, the lump sum payment turned into monthly benefit checks.
While many may think of Social Security as a replacement of their working wages, this was never intended to be the case. The purpose of Social Security is to supplement savings to live in comfort for the rest of your days. At that time quality of life was much lower and life expectancy was much shorter, so this thought may not have been way off base. Now, however, things are different.
Our quality of life has gotten much better and few expect to carry out this lifestyle through our retirement years. The quality life we have attained comes with a relatively expensive price tag. And now you have to decide how you are going to pay for it.
For example, John Collins is an average 65-year-old who is planning to retire and fund his only source of retirement is his monthly Social Security benefit check. His current annual salary is $40,000 and he is taking full retirement when he reaches 65½.
The Social Security Administration website has a calculator on its website for calculating monthly benefits. Using the calculator located at www.ssa.gov/planners/calculators.htm, John’s estimated monthly benefit is approximately $1,101 per month, which is approximately 1/3 or ¼ of the salary John is brining home now.
Here is an estimate of John’s expenses. Unlike some, John has completely paid off his mortgage and does not currently have any credit card balances.
Car payment.....................250.00Power/Gas Utility..............100.00Telephone...........................40.00Insurance (home/auto) .....150.00Cable/water.........................50.00Food/Groceries..................300.00Gasoline...........................50.00
His total monthly expenses are $940, which means John has $161 left over each month for any other expenses that may come up, like health insurance. John can apply for Medicare, but this can cost him up $200 per month, which means he is out of money.
This is just one example of a fictional character. You can use the Social Security Administration calculator to approximate your own monthly benefit checks.
But using this example, you can easily see how Social Security alone may not be enough to cover everything during retirement. John, for example, will not be able to live on his Social Security check alone. While there may be some ways John can cut his expenses, more than likely, he will have to find another source of income in order to live out his retirement years in some kind of comfort
