Retirement requires loads of preparation. It's especially important to know where your income will come from.
For millions of older adults, Social Security is critical. Around 41% of baby boomers say that benefits will be their primary source of income in retirement, according to a 2023 report from the Transamerica Center for Retirement Studies.
If you're retiring in the next year, now is the time to make sure you know what to expect from Social Security. And there are three moves to make right now to ensure you're maximizing your benefits.
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1. Check your estimated benefit amount
Even if you're not retired yet, you can still see your future benefit amount. To see your estimate, you'll need to check your statements. If you're not receiving paper statements in the mail, you can check them online through your mySocialSecurity account.
Once you're there, you'll see your estimated benefit amount, based on your real earnings throughout your career. When you know how much you'll receive from Social Security, it will be easier to determine whether your savings are going to be enough.
2. Think about how your age will affect your benefit amount
Your estimated benefit based on your earnings is the amount you'll receive by filing at your full retirement age (FRA). If you claim before or after that age, it will affect how much you'll receive each month.
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If you claim as early as possible at age 62, your benefits will be permanently reduced by up to 30%. By delaying benefits up to age 70, though, you'll receive your full benefit amount (the amount you'll collect at your FRA) plus a bonus of at least 24% per month for the rest of your life.
There's not necessarily a right or wrong time to claim, and there are pros and cons to both filing early and delaying benefits. But it's important to think about how your age will affect your benefit amount so that you're not hit with any surprises after you start taking Social Security.
3. Have a backup plan in case benefits are reduced in the future
Social Security has been struggling in recent years, and there's a chance it could lead to benefit cuts or greater loss of buying power. The program's income sources (primarily payroll taxes) haven't been enough to fully fund benefits, so the Social Security Administration has been tapping its trust funds to avoid cuts.
However, those funds are expected to be depleted by around 2034, according to the most recent estimates. At that point, there will only be enough cash to pay out around 80% of future benefits.
There is a chance Congress will come up with a solution before 2034. If that doesn't happen, however, benefits could be slashed by around 20%.
Social Security has also struggled to keep up with inflation, and it's lost around 40% of its buying power since 2000, according to research from The Senior Citizens League. Between potential cuts and the loss of buying power, Social Security may be even less reliable in the future. If it's going to be a significant source of income for you, it's wise to start coming up with a backup plan now.
Social Security can go a long way in retirement, and the more you're able to plan now, the better prepared you'll be. By determining just how much you'll be able to depend on your benefits, you can ensure you're doing everything possible to set yourself up for success in retirement.
