For many if not most retirees, Social Security forms the backbone of their retirement income. As savings rates decline and traditional pensions go the way of the Edsel, Social Security plays an increasingly critical role in the lives of more and more seniors.
But an article we just read on the CNBC website reveals the troublesome results of a recent survey conducted by the Nationwide Retirement Institute. It stated that a significant number of retirees, almost 3 in 10, have been surprised to discover that their Social Security benefits turned out to be either “less” or “much less” than they had expected. Among retirees drawing benefits for a decade or longer, the percentage reporting an unpleasant surprise in the size of their benefits was even higher. Even current workers, says the survey, tend to estimate higher benefits than they end up receiving, with a $232 average monthly gap between expectation and reality.
(Click here to read the CNBC article.)
What accounts for this disparity? Why are so many seniors unhappily surprised by the size of their benefits? CNBC lists seven reasons why benefits may be smaller than expected. A few of these are obvious: for example, some people are merely guessing what their payment might be, while many others see lower benefits simply because they start taking those benefits before reaching full retirement age. But here are a few “benefit reducers” that can often come as a surprise.
One of the factors that can trim benefits is what Social Security calls “Work Offset.” This applies if you take benefits before full retirement age (66 for most of us) and also continue working. For 2016, if you’re receiving benefits and are not yet 66, you will see your benefits reduced by one dollar for every two dollars you earn over $15,720. This can come as a shock to some working retirees, and you’ll need to plan for it in your budget. (Fortunately the Work Offset disappears once you reach full retirement age.)
Another benefit-reducing factor is Medicare Premiums. It’s no surprise to most retirees that these premiums are withheld from Social Security – but what can be a surprise is the amount of those premiums. In the case of Medicare Part B, premiums range from $121 per month to almost $390, depending in part on the retiree’s adjusted gross income. If you as a retiree do anything unusual to boost your income – selling real estate, for example – it could affect your Part B premium. (The CNBC article explains this in more detail and tells how you might be able to appeal the rate hike if the income boost was a one-time aberration.)
There are also some types of Pensions that can reduce Social Security benefits once certain provisions kick in. These are generally pensions for government workers, teachers and railroad employees, occupations which don’t generally pay into Social Security. The rules for these pensions can be complicated. For an explanation of these pension provisions, here is a link to an earlier CNBC article that might be helpful (even though some of the points in the article that deal with the now-discontinued “file and suspend” strategy are outdated). The article stresses the need to plan ahead and do your homework, since there are some aspects of public pensions than can dramatically reduce both your own Social Security benefits and those of your spouse.
The need to plan ahead and do your homework is important in all facets of retirement. That’s why we here at Aging Options have created a comprehensive planning process we call LifePlanning. As we work with clients to build an individual LifePlan, we answer questions that are essential to a secure and fruitful retirement. Is your financial plan secure? Are all your legal documents up to date? Have you planned for your housing choices? Are your medical needs covered? Is your family aware of your plans, dreams and wishes in retirement? With a completed LifePlan in place, the answer to each of those questions is a confident “yes.”
To find out more about the LifePlanning process, we invite you to attend a free LifePlanning seminar in your area. You’ll come away from these information-packed sessions armed with new information and a solid perspective to help you plan the future you’ve dreamed of – and remember, there’s no obligation whatsoever. Click on the Upcoming Events tab for dates, times and online registration, or contact us here at our office.
Our goal is that all your “retirement surprises” will be pleasant ones! We’ll look forward to meeting you soon.
(originally reported at www.cnbc.com)
