Your income channels will drastically vary when you reach retirement. Without the cushion of a biweekly paycheck from your employer, it becomes even more important to understand your revenue streams and where they will come from.
With your traditional paycheck taking a backseat, other income streams will take center stage:
Social Security is one of the most misunderstood forms of retirement income, because of the many variables that go into calculating your benefit. I’d like to give you the tools to help you figure out the amount of money you can expect from Social Security when you retire.
Social Security is a government program designed to aid aging Americans after they retire from the workforce or those who have become disabled. Orchestrated in 1935, this system has been operating for over 80 years, offering support to many people.
But that support looks different for each person who claims Social Security. There are two primary factors that will determine the amount you are eligible to receive:
Your work record is the amount of time you spent in the workforce. You can think of it like a resume, detailing your work history over the years. This work record will translate into credits, for 2019 one work credit equals $1,360, and you have to reach at least 40 credits to be eligible for Social Security benefits. This, however, is on the low end and many people reach this credit threshold after just a decade in the workforce, so there is another parameter in place: your age.
According to the Social Security Administration, there are three primary times when a person can begin taking their benefits: 62, full retirement age (which for those born after 1960 is 67), and 70. The age you begin claiming is entirely up to you and should depend on your individual goals and needs in retirement. By claiming early, at 62, you will not be eligible to receive your full benefit, reducing the overall amount by up to 30%. By waiting until full retirement age, you will be able to get 100% of your benefit. If you hold out even longer, until 70, you will get about 8% more per year that you delay.
Now that you know the parameters for collecting Social Security, how can you determine what your amount will be? Let’s find out.
The Social Security Administration, or SSA, has wonderful applications to help you calculate the amount of money you should expect to receive when you begin collecting benefits. One of the best resources is their retirement calculator. This allows you to input your information: age, income, work record, etc. and it will give you a number specific to your situation. This is really helpful in retirement planning and budgeting. Since Social Security supplements about 40% of a retired person’s income, it is good to understand what number you are working with.
If you are really into math, or just love spreadsheets, the SSA also has this worksheet to help you calculate your retirement benefit.
It’s always a good idea to log into SSA.gov and obtain your social security statement regularly, to be sure that they have your income reported correctly on which the benefit is calculated. This income is found on your W-2 under “Social Security Wages” or if you’re self-employed, your income reported subject to self-employment tax.
There are many unknown factors heading into retirement. Make your knowledge of your Social Security benefits one less variable to worry about heading into your golden years. If you would like to talk about how Social Security will impact your retirement income, contact me!
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.