Clients often have a misconception that social security benefits and a simple 401k plan are sufficient for retirement. The reality is, it is important to create a real retirement plan so you won’t need to be dependent on government benefits, in order to have a comfortable retirement. Social security may not be a secure as you think. That’s why you need to do some California retirement planning.
What you need to know about Social Security benefits
Most of us are concerned about the certainty or stability of the government’s Social Security system. First, you need to understand a little about how the system works. All while you are employed, you are making contributions to Social Security through the FICA taxes that are automatically withheld from your pay check. FICA stands for Federal Insurance Contributions Act. These contributions go towards paying Social Security benefits for other workers when it is their time to retire. Once it is your time to retire, you will receive benefits from the system, as well, based on your level of contributions.
The future of Social Security
The concern that many have is whether there will be sufficient benefits available by the time they retire; regardless of how much they may have paid into the system. With more and more people living longer than before, and more people looking to social security benefits when they retire, a greater burden is being placed on the Social Security system. Ultimately, the strain on the system may require the federal government to reduce social security benefits, or even suspend them entirely.
Social Security benefits may not be guaranteed
According to at least one study that has been published, the ratio of covered workers versus the number of beneficiaries under the Social Security program, has decreased substantially. In 1940, approximately 35.3 million workers paid into the Social Security system, however there were only 222,000 beneficiaries. That amounts to a ratio of 159 to 1. Now, though the numbers are more concerning. For example, in 2003 there were 154.3 million workers paying into the system, with as many as 46.8 million beneficiaries. That’s a ratio of 3.3 to 1.
Effects of unanticipated medical expenses
As we get older, the likelihood of developing medical problems usually increases, as do the resulting health care expenses. Without appropriate financial support, medical expenses often lead to an overwhelming financial burden. Therefore, one element of your retirement plan should be long-term insurance (LTC), the purpose of which is to aid in financing your health care needs during your retirement years.
What to do if you think you may retire early
With Social Security, the earliest you can begin collecting retirement benefits is age 62. It is important to note, though, that the longer you can postpone collecting social security, the larger your payments will be when you ultimately do. In fact, you will not receive your full retirement disbursement, unless you wait until “full retirement age,” which has been increased to 67 years old, for individuals born in 1960 or later. If you were born before 1960, your full retirement age depends, instead, on one the year you were born.
Social Security benefits may not be sufficient
There was a time when an individual’s retirement was financed entirely by employers and government benefits. Now, though, with the reservations people now have about relying on Social Security, it is more necessary than ever for individuals to take retirement planning into their own hands. Even if there will be social security benefits available for you, they will likely be insufficient for providing a comfortable retirement. The purpose of the social security program is to provide only the bare minimum standard of living during retirement. Therefore, without proper retirement planning, your golden years may not be as comfortable as you hope.
Common mistakes in retirement planning
Your golden years are supposed to be relaxing and stress-free. However, the mere thought of retirement planning can have the anxiety levels climbing. Some of the major issues in retirement planning are whether you will have enough money to retire comfortably, as well as, when and how to start planning. Your estate planning attorney can help, but here are some of the most common mistakes you need to avoid:
- Not accumulating enough savings to have a comfortable retirement
- Forgetting to update your retirement plan as the years go by
- Overlooking the potential need for long-term care during retirement
- Failing to consider the likelihood of higher health care costs in the future
- Setting and maintaining unreasonable retirement goals
Join us for a FREE seminar! If you have questions regarding retirement goals, or any other retirement planning issues, please contact the Schomer Law Group either online or by calling us at (301) 337-7696.
Latest posts by Scott Schomer, Estate Planning Attorney (see all)
- What are the Advantages and Disadvantages of a Living Trust? - January 15, 2019
- Why Avoid Probate? - January 10, 2019
- When Do I Need a Tax ID Number for a Trust? - January 9, 2019