3 Things You Must Know About Social Security Before You Retire

When you think about it, Social Security is a pretty good deal for retirees. Once you reach a certain age, you'll get to sit back, collect a monthly benefit, and enjoy it for the rest of your life.

To be clear, Social Security benefits aren't just a gift from the government. Rather, that's money you've earned by paying into the program your entire life, and those benefits can be extremely helpful once you decide you're ready to stop working for good.

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There are a few essential things to know about Social Security before ending your career. Keep these points in mind if retirement is nearing or if you're simply trying to plan for it.

1. Those benefits won't replace your entire paycheck

It's a big misconception that Social Security will pay you the same amount of money your job did each month. In reality, you should expect a lot less.

If you're an average earner, you can expect Social Security to replace about 40% of your paychecks from work. If your wages are above average, you might get even less of your income replaced by Social Security.

This is important considering you'll likely need more than 40% of your salary to live comfortably during retirement. Once you figure out how much replacement income you'll require, you can set a savings goal to come up with the rest. (Hint: It's common for retirees to need 70% to 80% of what they used to earn, but that percentage can vary from person to person.)

2. Claiming benefits early isn't automatically a poor choice

You're allowed to sign up for Social Security at any point once you turn 62. However, you won't get your monthly benefits without a reduction until you reach full retirement age, which is 67 for people born in 1960 or later.

You might hear that filing for benefits early is a dangerous move, since it means reducing them on a permanent basis. But whether that's a poor choice or not depends on you, and you alone.

If you have nice savings and want the money to retire sooner, your finances may not take a problematic hit. If you have health issues, you may want to claim Social Security early in case you don't end up living as long as you'd like to. Rather than follow that blanket advice, think about your individual needs and circumstances.

3. Benefits cuts are possible, but not a given

You may be worried that any Social Security benefit you're entitled to as of now will be reduced in retirement due to broad cuts. Unfortunately, that's a possibility.

Social Security is facing a big funding shortfall. Right now, there's no easy way to address it, which means benefits are vulnerable to cuts once the program's trust funds run out of money. Recent estimates point to that happening in about 10 years.

Still, benefit cuts may be avoidable. Lawmakers are well aware that cutting Social Security would mean plunging many seniors into poverty, so they need to deal with that crisis. While the clock is ticking down to address Social Security's financial woes, all isn't lost, and benefit cuts are not a given.

If you're worried about that, though, try to save more for retirement. It's not necessarily easy to do that, but you can't control what happens to Social Security. You can control how much money you're spending and saving each year, at least to some degree.

It's important to have a clear picture of Social Security ahead of retirement. Keep these points in mind so you know how much money to expect from the program, when to sign up for benefits, and what potential hiccups to plan for.

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