Including Social Security as Part of Your Retirement Plan

Social Security Administration LogoSocial Security Administration Logo

When you’re younger, thinking about retirement seems more like a concept than an eventual reality – the milestone seems so far away. But, one day, it will become a reality, and it’s better to start planning financially as early as possible for that reality to ensure that you have enough money accumulated not simply to exist, but to enjoy your work-free days.

Your retirement plan needs to be funded from different sources. After all, you shouldn’t put all of your eggs in one basket. One source that is often ignored or discounted, but should still be part of your plan – is social security.

What is Social Security?

Funded through payroll deductions, it is a system that you pay into while you are working so that when you retire, you will receive a regular, monthly check to fund or supplement your retirement income. Everyone must pay social security – even the self-employed.

When is the Best Time to Begin Receiving Your Social Security Payments?

You don’t have to wait until you have reached the age of 65 to start drawing on your social security benefits. You can take start drawing on it earlier, but there are penalties for doing so.

For example, 62 is earliest you that you can elect to begin receiving it, however, your payments will be 25 – 30% less than what you would have received if you had waited until the age of 65. This means delaying from age 62 to 63 would give a guaranteed 8% rate of return!

Why then would anyone consider taking early payments? There are many scenarios including health issues, a shorter than average life expectancy, or a financial shortfall, among other reasons.

However, if you plan on working and will earn more than your annual earnings limit, or do not have serious health issues, then you would probably benefit by delaying the start of social security.

Your annual earnings limit is the maximum you are allowed to earn before your social security benefits are affected – your amount due will be reduced by $1 for every $2 you exceed your limit. In 2013, this limit is set at $15,120. Note that this reduction applies to those years before your retirement age, and affects income earned after you start receiving your checks. Once you reach retirement age, this limit no longer applies and you can earn as much as you want without affecting your social security benefit.

Another thing to consider – if your earnings exceed your annual earnings limit, then you may have to pay taxes on it.

There are additional strategies that married couples can employ to get more out of their combined benefits. For example, if one spouse’s benefit is significantly greater than the others, delaying benefits for the higher-earning spouse can be a good course of action because it increases the amount the couple receives as long as either spouse is living. Having one spouse wait to start their social security benefits until age 70 might be the best option.

You can find online calculators that will help determine the approximate amount of social security that you will receive based on “what-if” retirement scenarios, which you then can incorporate into your retirement plan.

Depending on the amount you have saved in your portfolios, your projected passive income stream, your preferred standard of living, and your health, social security may comprise a smaller or larger part of your retirement plan. Be sure to do your research so you understand the nuances of when you should take social security to ensure a long, prosperous, and enjoyable retirement.

So, what do you think? Are you planning social security being available when you retire? When are you planning on taking it?

How Do I Start Saving? 5 Tips To Get Started Today!

5 Tips To Start SavingVery few people get really excited about saving money. Sure, there are some people out there that really love it, but for the rest of us, it just isn’t all that fun. Most would rather spend our money today on things we think will make us happy instead of putting it away to fund our future goals. Why is that? Our brains are actually wired this way. We receive a rush of endorphin’s when we spend money, but don’t receive any benefit when we save money.

When people ask me for advice on how to start saving, the first step is to face the fact that we are not wired to save money. Once we accept that fact, we can begin to find ways to “trick” ourselves into saving money. Here are some tricks I have found that are very helpful to get you started saving for the future.

Make It Automatic – Don’t give yourself the option to save money, because if you have to physically move cash from your checking account to a savings account or IRA, you probably won’t actually do it. Instead, talk to your HR department about having money deducted directly from your paycheck and deposited into a savings account or Roth IRA automatically. This way, you don’t have to do anything!

Write Down Your Future Goals – The hardest thing about saving money is we forget what we are saving for. Retirement seems so far away that it is hard to find the will to save for it. Take out a sheet of paper and write down your future goals. Cut out pictures from magazines that represent your goals, and hang them where you will see them daily. It will be a constant reminder of WHY you are putting money away instead of spending it today.

Look At Your Accounts Weekly – It is really easy to fall into a habit of ignoring our financial status. It’s like we believe if we ignore it, all of our problems will disappear! We know this isn’t true, so you have to make reviewing your finances a priority. Set aside time each week to review your finances. Look at your spending, savings, and income. You will be surprised how much easier saving money becomes when you make your personal finances a priority.

Don’t Beat Yourself Up – You are going to fail from time to time when it comes to saving. You will end up spending more than you intended on a date night, or the car will break down unexpectedly. It’s okay! Life happens… Pick yourself up, dust yourself off, and get back on track. Don’t let the guilt of failing to save money stop you from meeting your goals.

Get Started Today – There is no better time to start saving than today. Don’t wait until tomorrow, or next month, or until the kids are out of college. Guess what… there is never going to be a better time to save. Call HR today to raise your 401(k) contributions, or set up automatic contributions to a Roth IRA. Don’t make excuses… just get to it!

I know saving money is hard, but it is something you need to be doing. Use these tips to help you get started today!

Do you have any tips to add to this list? Please share them!

What Happens To My 401(k) At Retirement?

You have been saving into your 401(k) for years, and are finally approaching retirement. What will happen to your account? What choices do you have, and what should you do? You actually have a couple of options, and several pitfalls to be aware of. Some of these pitfalls could cost you big time, so be sure to stay on top of them!

1. Rollover to an IRA

After you have officially separated from your employer, you can rollover your 401(k) to an IRA. Rollover just means that the money goes from one account to another without being taxed. If you have contributed to a Roth 401(k), the money can be rolled to a Roth IRA. Employer contributions and Traditional 401(k) contributions can be rolled to a Traditional IRA.

2. Leave your 401(k) alone

Many 401(k) plans allow you to leave your 401(k) with your old employer. This is the simplest option, because you don’t have to do anything. Evaluate the investment choices and fees within your 401(k) compared to rolling it over to an IRA. Usually it makes sense to do a rollover, but leaving it alone is certainly an option. Read more..