If you’re thinking about retirement, you may be under the assumption that your Social Security benefits and your 401k will be enough. The truth is, if you are looking forward to a comfortable retirement instead of just getting by, you need a retirement plan.
How Social Security works
While we all make our contributions to Social Security as we receive our paychecks, most of us don’t actually know what it is or how it works. Nearly everyone who receives a paycheck, makes contributions to Social Security in the form of Federal Insurance Contributions Act (FICA) taxes. These contributions are used to provide Social Security benefits for other workers when their time comes to retire. Then, when your time to retire comes, you will receive benefits from the system, based on your contributions during your career.
Social Security benefits are uncertain
Many people suspect that the availability of Social Security benefits may not be guaranteed. This is primarily because of the numbers. According to some studies, the ratio of covered workers versus beneficiaries under the Social Security program has decreased substantially over the years. In 1940, there were approximately 35.3 million workers who paid into the Social Security system, and there were only 222,000 beneficiaries. That meant a comfortable ratio of 159 to 1. However, in 2003, there were 154.3 million workers, but 46.8 million beneficiaries; a ratio of 3.3 to 1. What it means, essentially, is that more and more people are retiring and living longer than before. This puts a greater burden on the Social Security system, which is a legitimate concern.
Social Security benefits are not enough
It used to be that an individual’s retirement was financed, almost entirely, by their employer’s retirement benefits and Social Security. However, with the insecurity with regard to government benefits, it is more necessary than ever for employees to take their retirement into their own hands. Even if Social Security is still a viable option in the future, it will likely not be sufficient to provide the type of comfortable retirement you may be expecting. Indeed, the purpose of Social Security is to provide the bare minimum standard of living. Therefore, without the right retirement plan, your golden years may be a little tarnished.
The costs of unforeseen medical expenses
It is generally accepted that, as we age, our medical issues will increase, along with the cost of health care. Without sufficient financial support, medical expenses often create an unbearable financial burden. For this reason, you may wish to consider long-term care (LTC) insurance, which will assist in financing any nursing home and possibly other health care needs during retirement.
Can I retire earlier?
Under Social Security, the earliest you can begin receiving retirement benefits is age 62. Yet, the longer you wait to start collecting your social security benefits, the more your monthly payments will be. In fact, you cannot receive your full retirement payout unless you wait until “full retirement age,” which is now 67 years old for most people.
If you have questions regarding a social security, or any other retirement planning needs, please contact Wilcox Attorneys, PA online or by calling us at (479) 443-0062.
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