Here on the AgingOptions blog, weve shared plenty of articles about Social Security.Over the years, weve found that this government program is more important and more misunderstood than one might ever suspect.Recently, we encountered this common-sense article on the Motley Fool website, written by reporter Christy Bieber.
She warns that there are at least four aspects of Social Security that might come as an unpleasant surprise to retirees who are uninformed and unprepared.We share this article as a reminder to do your homework and plan ahead if you want a retirement thats safe and secure.Each Social Security Surprise is Based on Wishful Thinking, Lack of Preparation Most retirees need income from Social Security to make ends meet, Bieber writes.If youre among the majority who will use these benefits to help support you in your later years, its important that you understand exactly what theyll do for you.
Sadly, it may be less than you think.In her Motley Fool article, she alerts readers that the retirement income Social Security will provide might be less than they anticipate.Thats why, she says, its essential to know these four key facts that often catch seniors off-guard.We would add that none of these unpleasant surprises is a secret.
But if you rely on casual estimates, bad advice, and wishful thinking, you may be in for a rude awakening.Here are Biebers four cautionary warnings.Social Security Surprise Number 1: A Smaller-Than-Expected BenefitWill Social Security be enough t0 live on? A surprising number of seniors think so.Nearly 60 percent of older adults believe Social Security will be enough to cover more than half of their total retirement expenses, according to a survey conducted by Nationwide Insurance, and about one-quarter of respondents think Social Security on its own will allow them to live comfortably in retirement.The sad reality is, if you believe either of these two things, youre going to be disappointed, warns the Motley Fool article and [youll be] in a difficult financial situation if you made your retirement plans based on these misconceptions.
Thats because Social Security was designed to be one of three sources of retirement income, the others being savings and pensions.Benefits from Social Security are only meant to replace about 40 percent of pre-retirement funds.Most retirees will probably need to replace about twice that amount.When your Social Security benefit turns out to be much smaller than expected, you could find yourself struggling to live on an income thats barely above the federal poverty level, says the Motley Fool article.
Dont let that happen.Check your Social Security account online to get an idea of the amount of income your benefits will actually produce for you.Then work with a financial planner to figure out how to generate the retirement income youll actually need.Social Security Surprise Number 2: Federal and State Taxes on BenefitsSocial Security benefits are called entitlements because youve paid pay payroll taxes throughout your lifetime, and now youre entitled to receive those benefits.
However, your income tax responsibility doesnt disappear.You wont find your IRS obligations have concluded after leaving the working world, says Bieber.In fact, theres a very good chance you could end up being taxed on your Social Security checks.
Many states (13 in all, according to Kiplinger) also levy income taxes on Social Security benefits.If youre in a low-income household currently $25,000 for single filers and $32,000 for married filers odds are youll owe no taxes.Depending on how much you earn above that amount, between 50 and 85 percent of your Social Security benefit is taxable.In real life, roughly half of all retirees end up paying part of their yearly income to Uncle Sam.
You need to be prepared for the effects of these taxes, warns Motley Fool, as theyll reduce the amount of Social Security income youll have to live on.Social Security Surprise Number 3: A Later-Than-Expected Full Retirement AgeAnother big problem, Bieber writes, comes from the fact that you may have to claim your benefits later than youre anticipating in order to get the full amount of them.Thats because you dont get your standard benefit unless you retire at full retirement age.Amazingly, according to the Nationwide survey cited above, fewer than one-quarter of pre-retirees actually know when their full retirement age is.Sadly, future retirees on average believe theyre eligible to get their full benefit at 63, when full retirement age is actually between 66 and 67, depending on your birth year, the article reports.
If you think youll be able to leave work in your early 60s and claim your full benefit, youre going to be surprised to find yourself with far less income than you anticipated.Because theyre ill-informed, a huge number of Americans are going to face this unpleasant reality.As you plan for your retirement income, make sure you know your full retirement age based on your birthdate, and avoid carelessly over-estimating benefits should you decide to retire early.Social Security Surprise Number 4: The Prospect of an Automatic Benefit CutThe fourth surprise cited by Motley Fool is speculative but if Congress and the President fail to take action, it could be a harsh reality.
Future retirees need to come to terms with the fact that theyll be getting less benefit money than they were promised if lawmakers dont act quickly to solve Social Securitys funding crisis, says the article.The problem is that the Social Security Trust Fund which helps support retirement and disability benefits is slated to run dry in 2035, according to the most recent estimates.When that happens, says the article, Social Security will be able to pay out around 76 percent of promised retirement benefits from money its collecting from payroll tax revenue but no more.Future retirees, in other words, are dependent on lawmakers to shore up the programs finances to prevent a 24 percent cut to benefits from happening in the next 15 years.
Even if lawmakers do take action, a future benefit cut is a possibility.The bottom line is clear: stop believing Social Security myths.To make sure you arent unpleasantly surprised, its imperative that youre realistic about what these benefits will do for you, the article concludes.Now you know the truth, so you can be ready.The Real Key to a Solid Estate Plan: an AgingOptions LifePlanWhen it comes to retirement planning, most people focus on one fairly narrow issue: money.
Financial planning is an important component of retirement planning.But people heading towards retirement often make the mistake of thinking that a little financial planning is all thats required, when in fact most financial plans are woefully inadequate.What about your medical coverage will that be adequate? What if you have to make a change in your housing status will that knock your financial plan off course? Are you adequately prepared legally for the realities of retirement and estate planning? And is your family equipped to support your plans for the future as you age? The best way we know of to successfully blend all these elements together finance, medical, housing, legal and family is with a LifePlan from AgingOptions.Thousands of people have discovered the power of LifePlanning and we encourage you to the same.Simply visit our website and discover a world of retirement planning resources.
Make certain your retirement planning is truly comprehensive and complete with an AgingOptions LifePlan.Age on!(originally reported at www.fool.com)
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