Retirement: From Saving to Spending – The Costs and Calculations

Retirement: From Saving to Spending – The Costs and Calculations

saving and spending strategies during retirement
SSDA USA is here with saving and spending strategies during retirement.

Getting ready for retirement? Want to know how to get the most out of your old age, survivors, and disability insurance program (OASDI) benefits? Social Security Disability Advocates USA is here to help shed some light on this federal government benefits program. We’re also here to share potential saving and spending strategies to think about during retirement. Also, we’ll bring up ideas that you may want to discuss with a financial planner to help you remain financially stable before and after you reach retirement age.

Retirement Facts

Social security retirement benefits are not meant as an income replacement. In fact, social security retirement benefits may only account for approximately 40% of your income. For instance, the average monthly retirement benefit in 2018 was $1,461, according to the Social Security Administration. This amount on its own could make it a challenge to cover basic living expenses for another twenty or even thirty years after retirement.

This can seem quite dismal when coupled with the fact that a majority of Americans may retire sooner than expected, from health-related to familial reasons. Then, if you add in unexpected costs such as medications, surgical procedures, and others, this minimal amount can quickly be drained faster than planned.

Luckily, there are some things you can do to help better prepare for retirement.

Planning

Planning for your retirement is one of the most prudent things you can do. Here are just a few things you may want to think about to potentially optimize your benefits.

Work Longer

The Social Security Administration requires 40 work credits in order to release your retirement benefits to you. Now, you earn one credit for every $1,360, and you can earn up to four credits per year. Essentially, then, you could have 40 work credits in only 10 years.

However, you shouldn’t stop working after only 10 years. Why? Well, the SSA uses your 35 highest-earning years when calculating your retirement benefits. Therefore, if you stopped working after 10 years, 25 zeroes will be averaged into their calculation. This will significantly reduce your benefits.

Working longer will make sure you don’t have any zeroes averaged into the benefits’ calculation. And, if you make more money than you did in the past, the SSA will continue to use and update your highest-earning years, even if you’re past your full retirement age.

For those who can no longer participate in gainful activity, they may be eligible to qualify for other SSA disability benefits.

Delay Benefits

Depending on when you were born, your full retirement age is probably 66 or 67. However, you don’t have to start receiving benefits at your full retirement age.

The earliest you can start receiving social security retirement benefits is age 62. Though, keep in mind that taking benefits early will permanently reduce your monthly benefits. For instance, if your full retirement age is 66 but you take your benefits at 62, your benefits will be permanently reduced by 25%. If your retirement age is 67 and you take your benefits at age 62, your benefits are reduced by 30%.

Luckily, as mentioned before, you also have the option to delay your benefits past your full retirement age. Depending on your full retirement age, your benefits can permanently increase by up to 8% for each year you decline to receive benefits, up to age 70. This could help in the long run, especially if you have a longer life expectancy.

Calculate Your Needs

One of the biggest mistakes you can make is to not properly calculate your needs in retirement. Many people think that when they retire, their expenses will go down. This is often not true.

Retiring means you’ll have more time for family, friends, hobbies, traveling, and other things. However, as you get older, you may also have more medical bills and other expenses. Additionally, you may also want to leave a nest egg/inheritance for your loved ones. All these things will take time, effort, and money to properly build.

Therefore, it’s best to plan ahead and try to include every variable you can think of. For instance, how often do you plan on traveling? Are you accounting for inflation? What will you leave behind? Are you considering unexpected lifestyle changes? These things all contribute to the costs involved in your retirement planning, so think carefully when calculating the costs involved.

Saving

Once you’ve done what you can to plan ahead, you should start to save your money properly. Here are some ways you can do that.

Start Saving NOW

That’s right, start saving now. It’s never too early, and it’s never too late. Saving any amount of money will always help you in the long run. Even better, though, is if you start saving money early.

You could consider a 401(k), Roth IRA, Traditional IRA, or some other form of personal retirement fund. No matter what you choose, saving money will always benefit you. In fact, saving $75 a month starting at age 25 will leave you with more money than if you save $100 a month starting at age 35. Therefore, you should never think that a small amount won’t make a difference. Saving even a little bit of money regularly adds up quickly, and you won’t regret doing so.

Stick to a Budget

While the pressures of the present moment can be a lot to handle, budgeting your time and money will pay off by the time you retire. Try to eliminate frivolous expenditures. Additionally, create a financial plan and stick to it!

Know how much you’ll need for bills, groceries, and other essentials, first. Then you may set some money aside for entertainment and other costs, too. Whatever your budget is, though, don’t deviate from it.

Furthermore, don’t treat any extra income as excuses to deviate from your budget. If you get a raise or bonus from your employer, that’s great! Congratulations! However, don’t use that money on things you don’t need. Save as much as you can. If you continue to save money no matter how much you make, your retirement fund will only grow.

Pay Off Your Debts

One of the most monumental hindrances to a comfortable retirement is debt. The earlier you can pay off your debts, the easier your retirement will be. Letting your debt grow is a drain on your financial resources and mental vigor. You don’t want to have to worry about the compounding interest on that loan, or the next payment you need to make on your car.

While it’s not abnormal to have some debt by retirement age, you should try to owe as little as possible. This way, you’ll have more money to save for the things you actually want to spend your money on. Therefore, start paying off your debts as soon as possible. You may not have as much money in the present because of this, but your future self will thank you.

Spending

Once you’ve come up with a plan and saved accordingly, there is the issue of spending your money when you do decide to retire. There are some good practices, and some not-so-good ones. Consider these things when spending your retirement money.

Spend Judiciously

Just because you can spend your money freely during retirement doesn’t mean you should stop being prudent. Many people face unforeseen medical expenses, loss of loved ones, unexpected bills, and other costs. If you spend all your money at once, you won’t have enough to pay for those unknowable circumstances.

Of course, it’s OK to enjoy your retirement. Try to find ways to travel and work on your hobbies! You can feel free to do what makes you happy. Just keep in mind, though, that you should still have some money saved in case something occurs that’s not in line with your plans.

Consider Your Methods

One way to optimize your saving and spending strategies to think about during retirement is to pick a good method. There are different ways of approaching how to spend your retirement benefits. You could spend your funds based on a stable plan, increasing plan, or dynamic plan.

A stable plan assumes you will spend the same amount every month. This is an effective choice if you want to keep it simple. However, such a plan wouldn’t account for inflation, which could affect your lifestyle later in retirement.

Contrastly, an increasing plan assumes that your costs will go up as you progress in your retirement. This plan is good for the long run, but if you want to enjoy vacations earlier in your retirement, it may not be the best option.

Finally, a dynamic approach considers other variables such as giving yourself time off during the winter for vacation. A dynamic plan allows you to be more liberal with your spending during your time off. However, you must be diligent and disciplined when you’re not vacationing. Otherwise, you won’t have enough money to enjoy your time off the way you would like.

Whichever method you choose is solely up to you. Just consider your needs and wants before you stick to a plan.

Stay Up to Date

It’s important to stay in the loop about your retirement benefits. The Social Security Administration offers projections of what your retirement benefits might look like. You should always contact the Social Security Administration if something looks incorrect. Check in with them every once in a while to make sure you’re receiving the correct amount. For help with managing your retirement benefits, contact Social Security Disability Advocates USA.

Need More Information Regarding Disability Benefits?

If you have questions about income limits, eligibility, or other items that could affect your social security disability benefits, contact SSDA USA today! Our attorneys are always standing by, ready to address your concerns. You can call us anytime at 602-952-3200. Additionally, you can get in touch with us via an online form or through our LiveChat feature. Consultations are always free, so don’t keep your questions to yourself. Contact an attorney today!

This is attorney advertising. SSDA, LLC is a group of attorneys that pursues claims for Social Security Disability benefits on behalf of its clients against the Social Security Administration. SSDA, LLC is in no way a part of the Social Security Administration. Further, the information on this blog is for general information purposes only. Nothing herein should be taken as legal advice. This information is not intended to create, and receipt or viewing does not constitute, a representative-client relationship.

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