Accounting for Social Security in Saving for Retirement
Did you know that you’ve been saving for your retirement from your very first day of work? It doesn’t matter if that first day was when you were 16 or 26, you’ve been saving for retirement.
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Did you know that you’ve been saving for your retirement from your very first day of work? It doesn’t matter if that first day was when you were 16 or 26, you’ve been saving for retirement.
How?
With Social Security.
Most jobs take Social Security taxes out of your paycheck so you can get a monthly benefit in retirement. How much of a benefit you’ll receive exactly is dependent on how many years you work, part and full time, and your annual earnings.
For most of us Social Security will be a portion of the retirement income we’ll want to use to fund our desired lifestyle in retirement. We’ll supplement with savings from an employer provided plan such as a 401(k), individual retirement accounts (IRAs) or other investment vehicles.
With an understanding of the role Social Security will play in your retirement you can craft a savings plan for your unique situation. As the first part of this process at America Saves, we suggest checking out the 6 Steps to Jumpstart Your Retirement Savings tool:
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- Get in the retirement ready mindset.
- Create a picture of the type of lifestyle you want in retirement.
- Calculate how much money you will need in retirement to fund this lifestyle.
After having an estimate of how much annual income you will need in retirement you can look at what to expect from Social Security. Knowing what your projected Social Security income will be can help you determine how much else you will need to save through other sources –your employer plan and private investment accounts. While Social Security income may not be enough to fund 100% of your expenses in retirement, it can help bridge the gap between income from other sources and your projected expenses.
So how do you know what to expect for Social Security income? It all starts with checking your personal earnings history with the Social Security Administration (SSA). Your benefit is based on your lifetime earnings, so it is a good idea to check your earnings record annually at SSA. You will see each year of your earnings from the time you started working and if there are any incorrect figures you can report them to SSA to ensure your earnings record is accurate.
Once you have logged onto your account you will see projected benefits for three different timeframes – early, full, and delayed. The actual amount you collect from Social Security will be higher the longer you wait to start collecting, once eligible, up until age 70. The timing of when to begin collecting Social Security should be based on your own personal needs.
With information from your individual Social Security account, you can include those income projections into your retirement saving calculations. This will help you better estimate how much else you need to save for retirement through other sources.
There are many retirement calculators available online that can help you estimate what you need to save before retiring. You may want to check with your financial institution or the company sponsoring your employer’s retirement savings plan to see if they offer such a calculator. You can also enlist the services of a financial planner – again check with your financial institution or retirement saving plan provider as they may have planners on staff. Whatever option you use, be sure to include your projected Social Security benefit into the equation. The more accurate the information you include in your calculations the more accurate the estimate of what you need to save will be.
Social Security is an important component in saving for retirement. You don’t want to overlook what it will provide when you’ve stopped working. So, having a full understanding of what your Social Security retirement income will be means giving you more power through more information.
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