When it comes to financial knowledge and saving for retirement, the vast majority of people are severely undereducated and misinformed regarding the best way to go about doing it. This is particularly true when it comes to the logistics of saving for your retirement with Social Security. Supporting nearly 70 million Americans, many people may be at risk for making financial mistakes when they cannot see not only not optimizing their Social Security benefits, but can also see the Social Security Administration (SSA) take them away.
Maintaining sound financial knowledge
When it comes to financial literacy, the most important thing you will ever educate yourself on is how to save for retirement. Starting as early as possible is usually the biggest piece of advice people give when it comes to your retirement income. While Social Security is usually the only fund many people pay into to support them in their retirement, the reality is that this income alone is not enough to support you in your old age.
The SSA strongly recommends that when saving for your retirement, you ensure that you have a diverse and large scope of sources you can draw upon in your old age. Economists agree that you need an income strategy that is not dependent on one source to mitigate risk within the financial markets. One way to do this is to invest in low-risk stocks to take advantage of the power of compound interest.
The biggest mistake working individuals make before they retire
One of the biggest mistakes working individuals make when it comes to Social Security is not estimating how much they are likely to receive in benefits when they decide to claim. It is very important when you start working to have a plan in place that can estimate an income trajectory of how much you should be putting into the program each month to claim your benefits with a maximized amount.
You can find help on the Social Security Administration website
The SSA website offers an online tool that can help you guess how much you can expect to receive in benefits based on your working history and anticipated income by signing up for an account. If you have already been paying into the program, you should also verify to confirm if the Administration has your correct earnings history so that you do receive the full benefits you are entitled to.
To avoid making this mistake, you must have a long-term plan based on your current income to ensure that you maximize the amount of earnings you receive when you retire.
Other common mistakes beneficiaries make
Other common mistakes beneficiaries make when it comes to saving for their retirement, which cause them to not maximize their benefits, are as follows:
- Claiming their benefits too early
- Not understanding the full retirement age
- Not working for long enough
While you can claim your Social Security retirement benefits before reaching full retirement age at 62 years old, and many people across the United States choose to go this route and start being paid their benefits sooner, the FRA is actually 67. This contradicts what many beneficiaries think, as it is still falsely thought that the FRA is 65. If you can hold off claiming your benefits until 67, the SSA will increase your benefits and not “take” your benefits. This is done to encourage people to claim later. In addition to this, you need to make sure that you work for at least ten years to even claim your benefits, and you should try to work for at least 35 years, as the SSA calculates your benefits based on your top 35 years of earnings.
