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136 Million People Don't Know This Key Social Security Fact

By Christy Bieber – Updated Jul 30, 2021 at 9:52AM

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Are you one of them?

When you're making retirement plans, you need to understand the role Social Security will play in supporting you. Unfortunately, there's one crucial fact the majority of Americans are missing about these benefits.

According to a recent survey conducted by Nationwide, just 54% of people are aware what percentage of their income will be replaced by Social Security.

Two people sitting at table while looking at paperwork and laptop.

Image source: Getty Images.

Americans can't make retirement plans without knowing this number

With around 252 million adults in the United States, that means more than 136 million people are lacking a clear idea of the amount of income Social Security will provide relative to what they earned before retiring. 

This can be a huge problem because people often make unrealistic assessments about the level of support they can count on from Social Security. If you are anticipating retirement benefits will offer more money than you'll actually get, you could underestimate the amount of retirement savings needed and end up with a shortfall.

On the other hand, underestimating Social Security benefits could mean you put too much unrealistic pressure on yourself to save more cash than you'll end up needing as a senior. 

So how much of your income can Social Security replace?

The reality is, Social Security is probably going to replace less of your income than you might think. The general rule of thumb is that it's designed to replace about 40% of pre-retirement earnings, but the actual percentage depends on how much you earned.

The National Academy of Social Insurance found a 65-year-old retiree in 2020 would have 40% of their pre-retirement income replaced only if they were a "medium" earner, defined as having an income of around $53,757.

While lower earners saw a higher replacement rate -- around 53% for those with incomes of $24,191 -- high earners with incomes of $86,011 would get checks equaling only about 33% of pre-retirement income. And very high earners with incomes of $132,048 would see just over a quarter of their pre-retirement earnings replaced by Social Security. 

Is that enough?

The bottom line is, even in a best-case scenario when Social Security replaces a little above half the income you were earning before retirement, it's probably not going to be a sufficient source of support.

The general rule of thumb is that maintaining your living standard in retirement will necessitate replacing at least 70% of what your earnings were while working. Many retirees need far more than that, with some seniors seeing retirement expenditures exceed their spending when they were in the working world. This can happen for fun reasons, when retirees travel or indulge hobbies -- but it can also happen because of high healthcare costs.

Sadly, for the 136 million people who don't know what percent of income Social Security will replace, it is difficult to plan for enough supplementary savings. You don't want to be caught off guard when you find out your benefits aren't sufficient, so sign into your Social Security account to find out how much money you can expect to receive.  Be sure to take your retirement timeline into account, since your age when you file for benefits affects the size of your checks.

Once you know what Social Security can do for you, start making plans to invest enough in a 401(k) or other tax-advantaged account to have a comfortable life in your later years. 

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