When you’re in your 40s, you may have a lot of things on your mind — paying the mortgage, funding your kids’ college accounts, and making sure your teenagers actually get home for curfew like they’re supposed to. You may not be totally focused on retirement beyond contributing money each month to your 401(k). And you may not be ready to start digging into Social Security.
But there are a few key things you should know about Social Security at this stage of life. Here are some important points to be mindful of.
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1. You can expect to get benefits in retirement, despite what you may have heard
You may have heard some rumors that Social Security will be out of money by the time you’re ready to retire. But thankfully, that’s not true. And there’s no reason to write off Social Security as a retirement income source.
What may happen, though, is that Social Security could cut benefits between now and then if lawmakers don’t manage to find a way to address the program’s financial shortfall. Initial estimates are calling for about a 20% reduction in benefits, though that percentage is subject to change.
The good news is that if you’re in your 40s, there’s plenty of time to boost your savings to make up for potential Social Security cuts. That could mean increasing your retirement plan contributions by cutting some discretionary spending. Or it could involve working a side job to free up more cash for long-term savings.
2. You may not be able to get your complete benefits at 67
Right now, anyone born in the 1960s or later is eligible to collect Social Security without a reduction at age 67, which is also known as full retirement age. But by the time you reach your 60s, full retirement age could look different.
As mentioned, Social Security needs money to avoid benefit cuts. One solution lawmakers have proposed is to move full retirement age up a year or two. The logic is that since people are generally living longer these days, it’s not unreasonable to give them their complete benefit at 68 or 69 instead of 67.
If that change comes to be, it could become something that impacts your retirement plans down the line. So it’s a good thing to have on your radar.
3. Any estimate you get of your future benefits could change substantially
If you create an account at SSA.gov, you can access a copy of your most recent earnings statement, which will include an estimate of the monthly Social Security benefit you should expect in retirement. But because you may not be nearly done with your career, you should take that estimate with a grain of salt.
Let’s say you’re 45 and have earned roughly $100,000 a year these past five to 10 years. If you get a promotion at 48 that boosts your income to $160,000 a year, and it continues to rise from that point onward, it could lead to much larger Social Security benefits down the line. So while it’s a good idea to check your earnings statements each year, know that the number you see on screen may not be the benefit Social Security ends up paying you.
Your 40s are a good time to start thinking seriously about retirement, and that extends to Social Security. In addition to these points, it pays to start reading up on Social Security’s rules so you have a better idea of what to expect.
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