Social Security For Dummies. Jonathan Peterson
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on working? Are you physically up to it?
Think about your spouse. If you die first, it could determine how much your spouse gets for the rest of his or her life. Consider your spouse’s life expectancy and financial resources. Does he or she have a chance of living for many more years? If so, what are the household finances (beyond Social Security) to support a long life? Does the spouse have health issues that could cost a lot of money in the future? Husbands should bear in mind that wives typically outlast them by several years, because wives are typically a few years younger and because women have a longer life expectancy than men. Is that the case in your marriage?SOCIAL SECURITY BECOMES MORE IMPORTANT THE OLDER YOU GETYou can’t make the stock market go up or control whether someone will give you a job. You can’t make your house jump in value if the whole neighborhood is sinking. You can’t go back in time and start an early nest egg if you spent like crazy when you were younger. You can’t make your employer keep a pension plan. And you can’t prevent the cost of living from rising.But you do have some influence over the size of your Social Security benefit, based on when you claim it. This matters for a little-recognized reason: The older you become, the more likely you are to depend on Social Security.The more years pass, the more you need Social Security’s protection against inflation, known as the cost-of-living adjustment. This provision is a big deal (even if the adjustment is small some years) because the effect of inflation over time can be drastic. At a rate of 3 percent inflation, the buying power of unprotected income plunges by half over a 20-year period. Even if you’re fortunate enough to get a private pension, it’s probably not shielded against inflation, and rising prices erode it over time.Other resources can boost your retirement security but are far from a sure thing. Earnings from even part-time work may go a long way. But work may become undesirable or physically difficult in later years. Older Americans have the highest rates of home ownership. But older people still may have mortgages and other debts to consider — their debt levels have actually risen over the years.Social Security benefits compare favorably with many other sources of income, because they’re protected partially from taxation (see Chapter 13). Most seniors don’t have to pay a penny on their benefits. Even the most affluent pay income taxes on 85 percent of their benefits, not 100 percent.A 2019 report by the Economic Policy Institute found that nearly half of working families have no savings at all. Findings like that help explain why so many people are afraid they’ll last longer than their money does. If their fears are borne out, Social Security will play a critical role in filling the vacuum.
Talk it out if necessary. Couples should discuss this topic together, even though, in many marriages, one person may be the one who makes most of the financial decisions. You also may want to discuss your finances with a financial planner, especially if you’ve built up a nest egg and you have questions about how Social Security income will fit in.
Be clear on the trade-offs. You can choose between a smaller amount sooner or a bigger amount later. It often makes sense to talk with a financial advisor, especially if you have investments to help support your lifestyle in retirement. Your decision about when to start retirement benefits will affect your family income for the rest of your life.
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