Social Security Benefits

It is never too early to start planning for your retirement future. For most of us, the three major elements of our retirement portfolio will be benefits from company pension plans, personal savings and investments, and Social Security benefits.

The Social Security Act was signed in 1935. Since then, both our economy and the Act have been through numerous changes. The commonly held consensus is that, even with all of these changes, the spending power of the money you collect from Social Security will not be as great as it was for your grandparents, or even your parents. It was originally designed as a program to help meet the needs of the elderly and disabled. Even though Social Security should continue to play an important role in your retirement plan, it is important to remember that the monthly check is intended to supplement your retirement income, not sustain you through retirement.

The earliest a person can start receiving Social Security retirement benefits is age 62. For people born before 1938, you must wait until the first full month after you turn age 65 to collect full benefits. As the birth year moves forward from 1938, the eligibility age is raised. Beginning with people born after 1959, the eligibility age for full benefits increases to age 67.

An interesting bit of trivia about the Social Security Administration: when Social Security was first established, benefits were paid in the form of a single lump sum refund payment. The first reported applicant for a lump-sum refund was a retired Cleveland motorman, who retired one day after the program began. During his one day of paying into the fund, a nickel was withheld from his pay for Social Security. Upon retiring, he received a lump sum payment of 17 cents.

Fortunately for us, the Social Security Administration has worked hard to keep up with the times, and it is unlikely that there are many more total payouts of only 17 cents. Still, as our life spans increase, the number of years that benefits are paid out is growing. In coming years, you will probably have to work longer to get your benefits, and those benefits may be lower than they are for retirees today.

Well thought-out strategies for increasing your personal savings and investments for retirement can help make up for any funding shortfall. Here are some ways to help you build a stronger portfolio for the future.

Many companies are switching from defined benefit plans--which guarantee fixed payments for life, based on years of working--to defined contribution plans, e.g. 401(k) plans, which place more of the retirement funding responsibility on employees.

Contribute the maximum to your 401(k) plan. Pensions make up a small percentage of the average retiree's income, and this percentage is expected to drop as more companies look to trim costs. You can best take advantage of this benefit if you contribute the maximum allowed.

Contributions and income earned in a 401(k) are tax-deferred until you take the money out. If your employer offers a 401(k) plan and matches your contributions up to a certain amount, it makes sense to contribute the full amount the company will match. If you get 50 cents for every dollar you invest, you have a 50% increase right off the bat.

For many people, even the combination of Social Security and employer pension plans will not match the amount of their pre-retirement income. Building up the third source of income, personal savings and investments, is essential to help pick up the slack.

Open an Individual Retirement Account. With an IRA, your investment earnings are tax-deferred. With a Traditional IRA, both your contributions and earnings on those contributions are tax-deferred. With a Roth IRA, your contributions are made on an after tax basis. In most cases, however, earnings on your contributions are tax-free; after a specified period and beyond a certain age limit, both contributions and earnings may be withdrawn tax-free. You can use your IRA investment to help you buy a home or pay for higher education. If you are under the age of 59 1/2, you can make penalty-free withdrawals from either type of IRA without the 10% premature withdrawal/federal tax penalty, if the distribution is for a qualified first-time home purchase (subject to a lifetime limit), or for qualified higher education expenses.

Invest more aggressively. Depending on your estimated years to retirement, you may want to consider investing a portion of your assets in growth-oriented equity vehicles. Low-yielding bond and money market investments typically don't provide sufficient long-term growth to stay ahead of inflation and taxes. Just a few percentage points can make a big difference in your investment returns in your retirement portfolio.

Once you understand the various sources of retirement income available, take some time to review the makeup of your own plan and where you may fall short. You may want to make some adjustments now to help ensure a comfortable lifeclass when you retire. Your Financial Professional can help you develop a plan and select appropriate investment strategies for your future needs.

Stay apprised of the Social Security benefits you can expect. To learn how much you can expect from Social Security, go to the Social Security Administration's website at www.ssa.gov. A link on the site will take you to 'Benefits Planner'; enter the appropriate information to obtain detailed information regarding your estimated future benefits. You may also contact the Social Security Administration by phone at 1-800-772-1213. Follow the recorded instructions to receive a Request for Earnings and benefit Estimate Statement (form SSA-7004) through the mail.