And with so many Boomers ill-prepared for retirement, you're not just having to think about your own financial well-being, but almost half of you will find yourself needing to help support your parents and other family members financially. To be eligible for retirement benefits, you must have earned a minimum number of credits over the course of your working life. Everyone can earn up to four credits per year, and it takes a maximum of 40 credits to receive retirement benefits through Social Security. Your retirement benefit amount can change based on work experience, earnings, and age. The amount of retirement benefit you receive from social security is determined by your work experience, your average earnings over a span of 35 years, and the age at which you choose to begin receiving retirement benefits. Working while drawing social security may reduce your benefits. If you’re younger than your full retirement age and already receiving retirement benefits, there are limits on the amount you can earn before having your retirement benefits reduced. If you are under retirement age for the entire year, social security will deduct $1 in benefits for every $2 you earn above $16,920 (for 2016). In the month that you reach full retirement age, you won’t be subject to these limits, and your earnings will no longer reduce your Social Security benefits, no matter how much you earn. If you earn more than $25,000 in combined income and file as an individual or more than $32,000 in combined income as a joint filer, up to 85% of your social security benefits will be subject to tax.
For years, workers have been warned to save independently for retirement rather than rely on Social Security alone to pay the bills. While Social Security should replace a good 40% of your pre-retirement income, most people need at least 70% to 80% of their former earnings to stay afloat financially once they stop working. And new data from the Employee Benefit Research Institute tells us that in the early years of retirement, nearly 50% of households wind up spending more money, not less, than they did during their working years.
If your goal is to sustain a comfortable lifestyle in retirement, then you’ll need to make a solid effort to save as much money as you can, as early as you can. But if you don’t invest your savings wisely, you’ll risk coming up short.
Getting aggressive pays off
The beauty of tax-deferred retirement accounts such as IRAs and 401(k)s is the ability to grow your savings without having to pay taxes on your investment gains year after year. This allows you to reinvest those gains in full and take full advantage of compounding. The problem, however, is that most Americans are saving too conservatively for retirement and limiting their investments’ growth in the process.
According to a 2016 Wells Fargo study, 60% of savers in their 30s, 40s, and 50s are so focused on minimizing losses that they’re not capitalizing on growth opportunities. Or, to put it another way, more people than not are shying away from stocks at a time in their lives when that added growth could have a huge long-term impact.
Of course, the risky nature of stocks has long been a considerable barrier to entry for otherwise cautious investors. And it makes sense. Stocks are among the most volatile investments out there, and if you’re the risk-averse type, you’re probably inclined to put your money elsewhere. But there’s an upside to taking on the…