Retirement: A Journey, Not Just a Destination
For many folks, retirement is a destination. Thoughts of someday kicking back and reflecting on a career well executed, or meeting the challenges of supporting a family, all serve to propel us through our working years. But dreaming about retirement is one thing; planning for it is quite another.
The retirement landscape is changing. Traditional defined-benefit pensions are now available to only about 15% of non-governmental workers. Instead, most people rely on defined-contribution plans and personal savings to fund their golden years.
In short, retirement has shifted from a destination to a lifelong journey, requiring careful preparation. One key piece of that journey remains steady: Social Security. Since 1935, Social Security has helped seniors avoid poverty and continues to play a vital role in replacing income during retirement.
The Role of Social Security in Retirement Planning
Social Security was never designed to fully cover post-career expenses. Today, the program replaces less than 40% of the average worker’s pre-retirement income. That means the decision of when to file for Social Security benefits is one of the most important financial choices for future retirees.
When to File for Social Security Benefits
Filing at Age 62
- Earliest possible age to claim.
- Results in up to a 30% reduction for those born in 1960 or later.
- A $2,000 benefit at full retirement age would drop to about $1,400 if claimed early.
Filing at Full Retirement Age (FRA)
- Ensures 100% of earned benefits.
- FRA varies depending on birth year (generally 66–67).
Delaying Benefits to Age 70
- Increases monthly benefits by about 8% per year beyond FRA.
- That same $2,000 benefit could grow to $2,480 if deferred to age 70.
Survivor and Spousal Benefits
An early claim doesn’t just reduce your monthly payment — it also affects your spouse. A surviving spouse receives 100% of the claimant’s benefit at death, which means early filing could permanently reduce their income.
Social Security Earnings Test
If you plan to work while claiming Social Security before FRA, your benefits may be reduced due to the earnings test. Once you reach FRA, this penalty disappears, but it can have a big impact in earlier years.
Will Social Security Be Enough?
Social Security is just one part of the “three-legged stool” of retirement income — along with personal savings and retirement accounts. Since it covers less than half of pre-retirement income, most retirees need to combine it with other financial resources to maintain a comfortable lifestyle.
The Future of Social Security
The question of Social Security solvency is a real concern. While benefits will continue, projections suggest reduced payouts could become a reality without reforms. That makes it even more important for new participants to:
- Plan ahead.
- Maximize benefits by delaying when possible.
- Build savings outside of Social Security.
Final Thoughts
Social Security is a cornerstone of retirement planning, but it shouldn’t be the only leg of your strategy. By understanding when to file, how benefits are calculated, and how to maximize payouts, you can make smarter choices to ensure financial security in your later years.
(This article was developed by the AMAC Foundation Social Security Advisory Staff.)