You may be at a point in your career where you're counting down the weeks until retirement. And you may be in the process of making some fun post-career plans -- maybe a nice trip or an extended stay with family you haven't been able to visit in quite some time.
But before you retire, it's important to get a solid handle on Social Security. That doesn't just mean figuring out a filing age, though. It also means making sure you're not putting more financial emphasis on those benefits than you should be.
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Make sure your expectations are realistic
Some people make the mistake of assuming they can largely live on Social Security in retirement, and that it's OK to close out their careers with minimal savings. But one thing you must know before you make your retirement official is that Social Security will only replace about 40% of your wages if you earn an average paycheck. And if you're an above-average earner, Social Security will give you even less replacement income.
Meanwhile, it's common for seniors to need around 70% to 80% of their former income to manage well in retirement. So if your savings are such that you can maybe get a few thousand dollars of annual income, that plus Social Security may not suffice in buying you the lifestyle you want. And that's an important conclusion to draw before you tender your resignation at work and bring your career to an end officially.
Run the numbers carefully
It can be tricky to estimate your annual retirement expenses when that milestone is five to 10 years away. But if you've reached the final countdown toward retirement, then ideally, you have a solid handle on what your recurring bills are going to look like.
Total those up and then get an estimate of your monthly Social Security benefit. You can do so by accessing your most recent earnings statement on the Social Security Administration's website.
From there, figure out how much annual income you can expect from your nest egg. If you have $100,000 in savings and go by the 4% rule, it means you're looking at a $4,000 supplement.
Finally, add everything up and make sure the numbers work out. If they don't, it might be the push you need to delay retirement -- even if that's not so desirable.
Holding off on retirement could make it possible to delay your Social Security filing. That could result in a substantially higher benefit each month that changes your financial picture for the better. In fact, for each year you put off your claim past full retirement age, your benefits get to grow 8%, up until the age of 70.
Social Security is a financial lifeline for many seniors, but a lot of people overestimate the amount of replacement income they'll get out of their benefits. It's important to run those numbers before you retire, not after. That way, you can make some last-minute adjustments as needed that hopefully allow you to avoid a world of financial stress.
