Imagine the scene. It’s date night, only instead of going out for an overpriced meal at a loud restaurant, you and your spouse decide to cook dinner at home. You’ll pop open a nice bottle of wine, sit out on the deck, and enjoy your food with the backdrop of a fresh breeze. In the course of that meal, you could opt to chat about a host of things. You could discuss your next home improvement project, plan your upcoming vacation, or even indulge in a little neighborhood gossip.
Or, you could talk about Social Security.
It may not be the most exciting topic, to put it lightly. But there’s a key Social Security conversion every couple in their 50s should have, and you should only put it off for so long.
Read:Understanding proposed fixes for Social Security funding
It’s time to talk benefits
Hopefully, you’re sitting on a nicely funded nest egg at this stage of your lives and saving journey. But Social Security will probably still play a pretty big role in your retirement income. So it’s important to figure out what its place looks like and how you’ll make strategic decisions around claiming benefits.
Those decisions, for the most part, should be joint, which is why it’s important to talk about Social Security now, as opposed to weeks or months before you’re eligible to claim it. Some important points to touch on include:
How much of your retirement income should come from Social Security?
For average wage earners, Social Security benefits will replace about 40% of pre-retirement income. Now’s a good time to think about how much total replacement income you’re looking for. And your lifestyle preferences will shape that goal. If you’re looking to stay in your home, maybe own a second home by the lake, and travel a lot, you might actually need close to 100% of your current earnings. If you’ll downsize and spend more time close to home (maybe helping out with the hypothetical grandkids you’re hoping to have), you might need much less.
Once you’ve got that squared away, you can figure out where Social Security fits in.
When should we take benefits?
Your filing age for Social Security helps determine what monthly benefit you collect in retirement. Here’s a refresher on how claiming benefits works:
- The earliest age to sign up for benefits is 62.
- Your benefits are reduced for each month you file ahead of full retirement age, which, if you’re in your 50s, is 67.
- Your benefits grow 8% for each year you delay your claim past full retirement age, up until age 70.
If you don’t need that much replacement income and can therefore get by on a smaller monthly Social Security check, you may decide to take benefits early despite the reduction that causes. If you want a decent replacement percentage and think your savings will only provide a fraction of it, you’ll need more Social Security, which makes the case for claiming later.
One important thing to keep in mind is that as spouses, you don’t have to file for Social Security at the same time. In fact, it could pay to stagger your claims so that the lower earner files early or on time while the higher earner delays for boosted benefits.
And as morbid as it may be, you also need to talk about survivor benefits. If the lower-earning spouse outlives the higher-earning spouse, Social Security will pay survivor benefits equal to 100% of the higher earner’s benefit. The larger it is, the more the surviving spouse gains.
Are we prepared for benefit changes?
The Social Security Trustees recently released an update on the program’s finances, and it wasn’t great. The program’s Old-Age and Survivors Insurance Trust Fund that pays retirement benefits is expected to run dry by 2032, at which point only 78% of benefits are expected to be payable.
That probably sounds pretty scary at first, but the silver lining is that Congress has never allowed Social Security to cut benefits in the past despite that being a very real threat. That means there’s a good chance benefit cuts will be preventable this time, too.
Still, it’s not a bad idea to discuss the tough questions:
- Could we cover our expenses if benefits are lower than expected?
- Should we consider working a little bit longer if benefit cuts end up happening?
- Should we plan to spend less so we don’t have to stress if our benefits are smaller?
Don’t wait to have that talk
Given that Social Security eligibility doesn’t start until 62, you might think you’ve got plenty of time to talk about how the program fits into your future income strategy, when to file, and how to pivot if program cuts aren’t avoidable. But the reality is that having that discussion now gives you an opportunity to make changes to your plans, if necessary, in a calm, organized fashion – especially if retirement is still a few years away.
So the next time you sit down to dinner, bring your laptop to the table and dive right in on Social Security. It may not make for the most romantic evening, but you’ll probably feel better once you’ve had that talk.
This article written for TheStreet by Nifty 50+
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