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Fall 2018  Volume 11, Number 3        
 

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Getting Ahead of the Curve: Planning Now for Social Security Deficiencies

If you're like most people, Social Security will provide 40 percent of your income during retirement. Unfortunately, without changes, the federal government may not have enough money in 16 years to fully fund the program.

The Social Security Administration (SSA) paid $952 billion in benefits in 2017; and received $911 billion in taxes and $85 billion in interest earnings. Social Security's costs have exceeded revenue from payroll taxes since 2010, but interest income has covered the difference.

However, Social Security is on track to run a $2 billion deficit in 2018. If the deficit continues, SSA officials said asset reserves in the Old-Age and Survivors Insurance program will be exhausted by 2034. SSA will reduce benefits by 23 percent and will make payments strictly from payroll tax revenue.

SSA officials are encouraging Congress to take action. Fortunately, you don't have to wait for Congress to improve your financial future. You can take proactive steps to provide retirement funds and avoid depending heavily on Social Security.

Social Security Tactics

Experts recommend waiting until you're 70 to take benefits. After age 62 and before age 70, benefits are temporarily reduced $1 for every $2 earned over $15,480. If you wait to retire, your benefits continue to be adjusted upwards each year.

The expected shortfall has future retirees contemplating applying for benefits sooner rather than later. Retirees often need more money early in retirement when they want to travel and pursue hobbies, so taking the money early may make sense.

This is especially true for people with health issues. The typical retirement is usually 20 years. If you believe you might not live long after retirement, then the extra Social Security money could help pay medical expenses.

You also might want to take benefits sooner if you think you can outperform the increase you would get if you delayed claiming benefits. Waiting until age 70 to claim Social Security benefits will result in an eight percent increase each year past your full retirement age until you reach 70. However, experienced investors who think they can do better than an eight percent annual increase might be better off claiming early benefits and investing the money. Remember: you won’t have a large income to cover you if your investments fail.

First — Determine Your Financial Needs

Prepare a budget for how much money you think you will need when you retire. For instance, will your house be paid off or will you have a mortgage? Do you plan to travel? Do you have money set aside for medical expenses? Keep in mind that some expenses will decrease once you retire — such as commuting, clothing or eating-lunch-out costs.

You should determine your net worth by listing all your assets and liabilities. Assets are your valuable personal possessions, such as cash, real estate and investments. Liabilities are your debts and other legal obligations.

If you have debt, work on getting rid of it before retirement. Ideally you should be debt free when you retire. Focus on first paying off the debts with the highest interest rates, such as credit cards. Pay your mortgage off last because it probably has the lowest interest rate.

The best time to start your child's college savings fund is when they're young. Waiting until they're older — and when you're short of your retirement fund goals — is too late. Don't put money you need for retirement towards your child's college fund. College students can take advantage of student loans, grants, scholarships and work programs.

Call Your Financial/Retirement Advisor

It always helps to get professional assistance. Once you figure out your basic financial situation, talk to your broker — but be prepared to answer more questions and do more work. To recommend the appropriate financial strategies, your broker will probably want to know:

  • How much money you've saved for retirement
  • When you want to retire
  • The lifestyle you want (travel, volunteer work, hobbies)
  • Whether you plan to purchase a new home and have a down payment
  • The amount of debt or loans you're carrying
  • If you have an emergency fund.

Your financial advisor can help you re-evaluate your portfolio and help determine the best path to transition to retirement.

Call Your Insurance Broker

If you have large debts paid off and well-funded savings and retirement accounts, you might not need life insurance. However, it should be part of your estate planning if your spouse or other beneficiary will need funds after you pass.

Long-term care insurance protects your retirement savings if you need extended or nursing home care. It's a good way to manage the risk of losing your assets. It's not inexpensive, though, so it's wise to purchase coverage when you're in your 50s to avoid high rates.

You also should determine whether a variable annuity is right for you as a long-term investment. Variable annuities provide sustainable, reliable income in retirement. You pay an insurance company a set amount and in return you receive a guaranteed schedule of payments.

More Steps You Can Take

Consider taking a part time job during retirement to help pay for essentials or for "fun money." Many retirees appreciate the structure a part-time job brings to their lives and the opportunity for regular socialization.

Before you retire, take a close look at your home for possible repairs and remodeling if you want to stay there. You might want to install a shower with a shower seat or a chair elevator if you live in a two-story home. You can investigate purchasing a smaller home — one that better fits your needs and is less expensive with less maintenance. For help with retirement financial planning, please contact us.

 

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In this issue:

This Just In...

Getting Ahead of the Curve: Planning Now for Social Security Deficiencies

The State of Medicare: 2018 and 2026

Insurance That Goes Beyond Health Benefit Coverage

Too Much Blue Light? Filtering Lenses May be the Answer

 


The information presented and conclusions within are based upon our best judgment and analysis. It is not guaranteed information and does not necessarily reflect all available data. Web addresses are current at time of publication but subject to change. SmartsPro Marketing and The Insurance 411 do not engage in the solicitation, sale or management of securities or investments, nor does it make any recommendations on securities or investments. This material may not be quoted or reproduced in any form without publisher’s permission. All rights reserved. ©2018 The Insurance 411. www.theinsurance411.com Tel. 877-762-7877.