Millions of seniors today get a monthly benefit from Social Security. And chances are, you're looking forward to receiving your share of that pot given that you pay into the program on a regular basis.
But it's important to get a solid handle on Social Security well ahead of retirement and in the years leading up to it. And so to that end, it's best to avoid these Social Security mistakes at all costs.
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1. Figuring your benefits will cover your living costs in full
Some people don't make a big effort to save for retirement because they assume that once they stop working, they'll be able to seamlessly shift over to Social Security income. But you should know that in a best-case scenario, those benefits will only replace about 40% of your pre-retirement income if you're an average earner.
Now you'll often hear that the typical senior needs about 70% to 80% of their former income to get by comfortably in retirement. But the reality is that you may not need quite that much money if you're OK with living frugally and don't have many needs or expenses.
But even so, a 60% pay cut is a lot to manage, especially at a time when your healthcare costs have the potential to skyrocket. So rather than assume that you'll be fine to retire on Social Security alone, make an effort to save something.
You don't necessarily need to push yourself to enter retirement with a $2 million nest egg. But having at least a small amount of savings gives you some breathing room.
2. Assuming benefits won't get slashed
We just said that if you're a typical wage-earner, you can expect Social Security to replace around 40% of your pre-retirement income. But that assumes that the program doesn't undergo benefit cuts. And right now, that's a distinct possibility.
In the coming years, Social Security is expected to owe more in benefits than what it receives in revenue. It can make up for that shortfall by tapping its trust funds. But once those cash reserves run dry, benefit cuts will be on the table.
Now to be fair, this isn't the first time Social Security has faced the possibility of benefit cuts. And in the past, lawmakers have managed to avoid them. But there's no guarantee the same thing will happen this time around, so it's best to prepare for slashed benefits by boosting your savings accordingly.
3. Not discussing your filing options with your spouse
As you get closer to retirement, it's important to assess your choices with regard to claiming Social Security. But if you're married, it's just as important to discuss your options with your spouse.
Your filing age will ultimately determine how much money you receive from Social Security each month. And it might determine how much your spouse is eligible for, too, assuming that spousal or survivors benefits come into play at some point.
Plus, if you and your spouse both worked and are therefore entitled to Social Security individually, you have a prime opportunity to work together to maximize your benefits. So it's best to sit down and talk through a strategy together.
You might really appreciate the benefits you receive from Social Security once your retirement kicks off. But do your best to avoid these mistakes along the way.
