Millions of seniors get a monthly benefit from Social Security, and for many of them, it is the only source of income they will have in retirement. However, following the same path could end badly for you. This is why.
1. Your replacement salary won’t be that high.
The amount of replacement income you’ll require in retirement will depend on a number of variables, including the lifestyle you plan to pursue and the activities you’d want to engage in. As opposed to someone who plans to downsize and devote more time volunteering locally, someone who wishes to maintain a bigger home and frequently travel is likely to require a greater income.
However, on average, you should anticipate needing between 70% and 80% of your prior income to live well in retirement. Social Security will replace around 40% of your pre-retirement earnings if you had an average income. Therefore, it is obvious that you will need other income sources, such as savings, pensions, or part-time work if you want to reach the 70% to 80% threshold.
You could be thinking right now that you can survive on 40% of your prior income. But before you become overconfident, create a sample budget to verify that the math is sound.
Check to discover if you can survive on $2,000 per month if you currently earn $5,000 per month. If not, begin developing a strategy to augment your retirement income so you don’t run out of money.
2. Benefits reductions might be on the horizon
A revenue shortage for Social Security could lead to benefit reductions in the not too distant future. As was previously said, if you make an average income, you can anticipate that the retirement benefits you receive will replace around 40% of your prior earnings. However, Social Security may offer much less replacement income if benefits are reduced.
That’s really all the more motivation to work on saving money for retirement and take other measures to secure your financial future. It’s crucial to be ready for the likelihood that Social Security benefits could eventually be reduced, even if we can’t predict with confidence whether or to what extent they will be reduced.
Avoid putting yourself in a stressful situation.
Your senior years could be terrible if you retire on Social Security alone; you deserve better. Instead, be honest with yourself about how much money your benefits will provide and look for ways to supplement them.
If you’re still employed, you have the option of making contributions to an IRA or 401(k) that you can later access. And that’s a simple approach to minimize some of the financial strain that so many Social Security recipients face now.
There is still hope even if you are nearing the conclusion of your career and don’t have much saved up. Delaying retirement or switching to part-time work would both provide you the chance to save money. You might even find yourself in a situation where delaying your Social Security application will allow you to lock in a bigger benefit than you would receive by enrolling at full retirement age or sooner.