I know a lot of people are expecting to be a large part of their retirement.  While Social Security can be the difference between living an OK retirement and living a good retirement, there are many things to consider before you finally walk away from work for the last time.  By looking at your Social Security benefits and understanding a few things, you can better prepare for retirement.

 

Case study:  Me.  Using numbers from the Social Security Benefits Calculator, it figures that by the time I reach 67 years old, my benefits should be $1,434.  I am currently 39 years old, with 28 years to go. 

 

1.  The estimator does not adjust for inflation.  The estimator in this case shows my benefits to be $1,434 in 28 years.  If we figure inflation at 3% for that time, the "real" benefit I will receive only amounts to $645 at today's prices.

 

2.  The estimator does not add Medicare premiums, or anything else that can be deducted from your benefits.  Just like your paycheck, this is your gross amount, you will still have money deducted from it.

 

3.  The estimator makes the assumption that Social Security is static, that the program will always be in place, and that benefits would never be reduced.  We all know that Social Security is  in bad shape.  While this is suppose to be my benefit, there is no guarantee that I will ever collect a dime.

 

4.  Don't expect having your house paid off to help a great deal.  Don't get me wrong, owning a home is a great way of keeping expenses down in the future.  The fact of the matter is, while your actual mortgage will always be the same in a fixed loan, your taxes and insurance will continue to go up.  It is not all that uncommon that at the end of paying off a 30 year note, that the taxes and insurance by themselves will be as much as taxes, insurance, and mortgage payments were at the beginning of the mortgage.

 

5.  You have to consider insurance premium increases.  It's simple enough, older people have more health issues, and will see the hospital more often.  Even healthier seniors will see an increase in doctor visits compared to their youth.  Seniors will have more out-of-pocket expenses as well.

 

What to do.  While it may be a little gut-wrenching to see the figures, you can do things to protect yourself for retirement.

 

1.  Start working on your IRA.  Anything that you can add to an IRA will help.  There are many books, and specialists that can help you set up a plan for retirement.

 

2.  Pay off debt.  Trying to retire and pay off debt is a two-edged sword.  Having a higher debt and lower income is not a way for anyone to finish living out their life.  Pay off debts, even if it means working beyond retirement age, so you can enjoy retirement.

 

3.  Buy (and pay off) your house.  While I mentioned earlier that insurance and taxes go up significantly throughout the time you are paying off your house, they do not increase nearly as much as rent.  I know a couple in which after 30 years, their taxes and insurance matched their original tax, insurance, and mortgage payment.  Today, they live in a house that costs them about $219 a month, compared to $750 if they were "just" renting it.  They also continue to benefit, as no one has the ability to raise their rent over time. 

 

4.  Test to see if you can live off of your retirement.  A few years before you actually retire, contact Social Security, and see what your actual retirement benefits will be, including all of the premiums that you will have to pay out of it.  After you get this information, try to live off of that budget the last few years that you are still working.  If you find that it's impossible to live without a job, contact your Social Security office to see the benefits of not retiring for a few extra years, or what kind of options there are to both receive Social Security and work a part-time job.  You can earn a certain amount from work without getting a penalty, but it is best to contact Social Security directly, as these amounts will change.

 

The best thing that you can do if you are young and making future plans for retirement, is to not count Social Security in your calculations at all.  Learn to budget, and learn how to invest and spend your money well.  If by some chance, you do eventually retire and do get income from Social Security, I have no doubt that you can find something to make your retirement a little more fun. 

 

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