Social security is a complex issue, one that for obvious reasons grows more important as we approach retirement age. While all working people are aware social security exists and they pay into it in various ways, there are a great many of us who don’t fully understand how it works. Many people in planning for their retirement, have questioned both how social security works and when they should take it. We’ll address those here so you can make a more informed decision looking forward.
The Basics of Social Security
Let’s start with a fundamental question: how does social security work? In essence, social security is designed as a retirement safety net for working Americans who contribute to the system. People pay social security taxes on their incomes, which are put into a large pool of funds from which those who contributed can draw after they retire. Retirement occurs in one of two ways, either after an individual has reached a certain age or when they become disabled. The latter is strictly defined by the Social Security Administration, and the process for determining disability is thorough to avoid anyone abusing the system. Full retirement age for social security is 67 for those born after 1960; another consideration for retirement planning.
It’s important to remember social security benefits are only designed to supplement 40% of your pre-retirement income stream, rather than being a full income to see you through your golden years. Most experts agree you’ll need at least 70%-80% of your previous income to live comfortably in retirement, perhaps more depending on your living situation and personal habits. Replacing the additional 30%-40%—or more depending on your desired retirement lifestyle—is something you’ll have to plan for yourself as you look towards your retirement.
When Should I Take Social Security?
Now that the basics are out of the way, we can turn to an even more complex question: when should you take social security? There’s no quick and easy answer here; everyone’s situation is different and everyone has different goals for their retirement. You can take your social security benefits early, however, you’ll incur a permanent penalty for doing so—up to 25% overall in some cases. Another thing to factor in is your plans for retirement; there’s an increasing trend in folks who want to keep working into their 70s for personal reasons. If you’re one of them, you can plan accordingly and it can make things much easier.
For those of you looking for a more concrete answer, a social security calculator can be a very useful tool in determining when you should start taking your social security benefits. While these are available in a variety of forms and formats—the Social Security Administration offers one—you’ll benefit from a more sophisticated and personalized analysis built by professionals who work for you and for your retirement. Your situation is unique, with your wants, needs, and considerations all working together to create the best possible outcome. Using a social security calculator that looks beyond raw numbers is vital for planning your perfect retirement, and Omnistar Financial is proud to offer that service to our clients. Get in touch today and we’ll get started planning your retirement by illuminating the blind spots in your retirement planning, your investments, or any other aspects of your financial life.