Social-security-retirement is it enough?

Social-security-retirement income is for most current senior retirees a major part of their retirement income. For far too many it is all of their income. We all need to consider social security as “a floor” and not a full structured retirement funding source.

Relying on social-security-retirement income as the sole source of income is dangerous and not recommended. The government’s arbitrary retirement age is a moving target. If that date is still five or more years away for you, you would be well advised to moderate your reliance on social security.

According to the Social Security Administration's website, the monthly benefit amount is based on the Average Indexed Monthly Earnings as applied to an inflation-adjusted formula. The monthly benefit amount is then adjusted for whether you take retirement before or after your normal retirement age. The full retirement age is 66 for people born in 1943-1954 and will gradually increase to 67 for people born in 1960 or later.

You can continue to work and still get Social-Security-retirement benefits. Your earnings in the month you reach your full retirement age will not affect your Social-Security-retirement benefits. However, your benefits will be reduced if your earnings exceed certain limits for the months before you reach your full retirement age.

You can begin drawing reduced Social Security as early as 62. For every month you delay after reaching full retirement age, up to age 70, the monthly benefit increases.

  • If you are younger than full retirement age, $1 in benefits will be deducted for each $2 in earnings you have above the annual limit ($14,160 in 2011).
  • In the year you reach your full retirement age, your social-security-retirement benefits will be reduced $1 for every $3 you earn over a different limit ($37,680 in 2011) until the month you reach full retirement age. Then you get your full Social Security benefit payments, no matter how much you earn.

When you reach full retirement age, your benefits may be increased to take into account those months in which you received reduced benefits because your earnings were greater than $14,160. Also, any wages you earn after signing up for Social Security may increase your overall average earnings, and your benefit probably will increase.

Lower-wage earners get a higher proportion of their earnings than higher wage earners. The maximum monthly benefit that can be received in 2010 is $2,346. Spousal benefits are set at one-half of an insured spouse's full benefit. However, if a spouse's personal entitlement is greater than this amount, the spouse may elect the greater amount.

A divorced spouse who was married for more than 10 years and has not remarried can draw against the ex-spouse's work history. Widows and widowers can receive the higher of their own or their spouse's monthly payment, but not both.

According to the Senate Special Committee on Aging figures, funds will fall short in 2037. In theory payroll deductions for social security are held in trust by the government. In reality our money does not stay in “trust” nor is it invested for us. After current beneficiaries are paid, surplus dollars are spent by the government. Those dollars are replaced by government “IOU's”. The Social Security trust fund is, in effect, a congressional "piggy bank."

This is the first year that Social Security has had to cash in one of those bonds in order to meet its obligations. Our fiscally “responsible” Congress is going to have to find a way to fund a massive liability to future retirees. At this writing, future prospects are a little murky.

If your retirement date is five or more years away, you would be well advised to sharply reduce your reliance on social security. And with the counsel of your financial consultant focus on other sources of retirement funding if you haven’t already done so.

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