There’s a moment in life when we just know it’s time to retire. In most cases, the full retirement age is 66 years old. However, some people retire earlier, which leads us to explain what a retirement plant is and how it works. We need to keep in mind that the process of planning is crucial when it comes to retirement.
If you want to eventually enjoy the retirement benefits (Social Security), the best way to proceed is to plan ahead according to a certain retirement budget.
Of course, not all people know how much to save for retirement. In fact, there are some other questions related to this subject that are constantly rumbling in people’s heads, such as what to do with their free time or what is the retirement age. If you have some doubts and don’t know how to proceed with your retirement, then you have come to the right place.
To comprehend what benefits we are going to receive, we first must understand how these benefits work. First of all, you must know that Social Security will replace a percentage of your pre-retirement income based entirely on your lifetime earnings. This means that this percentage will vary depending on how much you earn when you start the benefits process.
The taxes you pay while you are working will go to retired people, people who are disabled, dependents of beneficiaries, and survivors of workers who died during their labor time. This means that your taxes are not held into a personal account that you can use whenever you want – they go to the persons that are earning benefits right now.
Then, how can I estimate my retirement benefits?
A fundamental part of the retirement process is to know how much you will get every month after you retire. Fortunately, Social Security allows all users to use a Retirement Calculator to check the earnings of each person. This calculation is made based entirely on your earnings, which means this is a fully personalized process. Of course, if you are not able to use the Social Security Calculator, there are other ways to estimate your total benefit amount by receiving help directly from a Social Security worker.
Basically, there are three types of considered ages for people to retire. It is normal to ask yourself when might be the best time to start saving for retirement. If you have this question, then it’s important to know that the age you begin collecting your benefits will drastically affect how much money you will be receiving in the future.
The first one is Social Security’s full retirement age. At this age, you will be collecting your full retirement benefit amount. For every person born after 1960, the full retirement age is 67 years old. Nonetheless, there’s the possibility to retire at an early retirement age, which is considered as early as 62 years old. Consider that if you retire early, your benefits will be less than if you retire at the proper age.
Finally, we have a delayed retirement age. If you don’t start collecting your benefits at 62 or 67 years old, your benefits will increase up until age 70. However, there’s no increase in the benefits after you turn 70 years old, so have this on your mind before choosing the age you want to retire.
The answer to this question highly depends on your personal point of view. For most people, saving at least 15% of the pre-tax income they get each year can mark an enormous difference in their savings. Naturally, most of these calculations are made considering that a person starts from age 25 to age 67, which is something that does not always work this way.
In consequence, experts recommend starting saving as early as possible. We know that this might be a little difficult sometimes, but it’s definitely the best way to maintain the lifestyle you want for the rest of your life.
The Transamerica Center for Retirement estimates the average retirement savings starting from 16,000 USD for Americans in their 20s, up to 172,000 USD for Americans in their 60s.
On the other hand, the recommended retirement savings are based mostly on the annual salary of the Americans, which means that if a 39-year-old makes 40,000 USD a year, he or she should have up to 80,000 USD in his/her retirement accounts when the time comes.
No retirement process would be really effective if there isn’t a solid plan behind it. It takes years to accomplish your real retirement goals. Keep in mind that there will be many factors affecting your retirement plan, so believe it or not, you should consider every possible scenario to assure your financial future.
Check every once in a while your earning history so you can estimate the value you are going to receive. Your annual Social Security Statement will be your best friend to organize the future you desire.
Additionally, a good financial education will be the key to control your earnings, savings, and expenses so you can have total control of everything that will ever happen with your money. Retirement is just around the corner – don’t underestimate a good plan!