Preparing for potential changes to the retirement age requires more than just waiting to collect Social Security benefits. In April of this year, the French government faced backlash when it raised the official retirement age from 62 to 64. This move was met with widespread criticism and protests, reflecting the growing concerns over pension reforms in a country known for its comprehensive social security system.
Although many European countries already have higher retirement ages (65 or more), the change was difficult for French citizens to accept, particularly as it was enacted through special constitutional powers rather than Parliament. This raises questions about what might happen if the U.S., which already has one of the world’s highest retirement ages for full benefits (67 by 2027 for everyone, earlier for certain birth years), decides to increase it further. The U.S. is already facing a retirement crisis, with both Baby Boomers and Millennials potentially experiencing reduced Social Security benefits. The Social Security trustees have projected that the fund will run out by 2033, leading to a 23% reduction in benefits if no changes are made.
The prospect of a higher retirement age in the U.S. could potentially lead to public outcry similar to what was witnessed in France. It is crucial to understand that opting for Social Security benefits at the age of 62 will result in a reduced payout compared to what one might have expected. In fact, their full benefit will be reduced by 30%.
Given Social Security’s uncertainty, it’s essential to consider ways to maximize retirement benefits and reduce reliance on the system. Here are three tips for individuals of all ages to consider before claiming Social Security benefits:
- Build up savings outside of Social Security: Experts recommend setting aside 10% to 15% of each paycheck for retirement savings, such as through a 401(k) or individual retirement account (IRA). Even if you can’t reach the full recommended percentage, take advantage of employer-matching contributions to boost your nest egg. It is beneficial to have extra retirement funds in addition to Social Security. This can be a backup plan if the retirement age is raised or benefits are decreased.
- Extend your work years: The Social Security Administration calculates benefits based on the average of your highest 35 years of earnings. Therefore, working longer and earning more during those years can significantly impact the benefit you’ll receive when you start claiming Social Security.
- Consider spousal benefits: Married individuals may be eligible for spousal Social Security benefits, allowing them to receive up to 50% of their spouse’s benefit. Carefully assess whether you’ll benefit more from your work record or your spouse’s. Spousal benefits can be claimed at full retirement age (currently 67), and waiting until then will ensure you receive the maximum amount.
Please remember that the tips provided here are general guidelines, and your circumstances may differ significantly. It is highly recommended that you seek the guidance of a financial adviser to make informed decisions tailored to your specific situation. Planning for retirement and maximizing Social Security benefits can be a complex undertaking, and a professional can assist you in determining the best course of action for your needs.