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How Much Does Social Security Really Cover in Retirement?

By Christy Bieber – Nov 20, 2021 at 1:22PM

Key Points

  • Social Security benefits are an important source of retirement income.
  • Social Security retirement benefits can't be your sole income source as a retiree.
  • You need to have a realistic idea of how much income Social Security will produce.

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You may be surprised to find it's less than you think.

Before you retire, you need to understand what sources of income you'll have and how much money those income sources will produce for you to live on.

It's especially important to know what role Social Security will play, as this is a reliable and steady source of funds for seniors -- but it may not be as generous as you think.

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Here's the truth about your Social Security income

The reality about Social Security income is that it was never meant to be your only source of retirement funds. As a result, it's not designed to provide you with enough income to live on without other money coming in. 

For the typical retiree, Social Security is meant to replace around 40% of pre-retirement earnings. For wealthy people, benefits will replace less of their earnings than for lower and middle income Americans, though.

That's the case for two reasons. The benefits formula is progressive, so lower earners get benefits equaling a higher percentage of wages. And, only wages up to a certain amount count when your benefits are calculated, so Americans with high incomes won't get credit for all their earnings under the formula used to set monthly benefits. 

But, whether you're rich or poor, the fact is that surviving -- much less thriving -- on just 40% of pre-retirement earnings simply isn't possible. In fact, while most experts suggest you'll need to replace at least 80% of what you were earning before leaving your job, a substantial number of retirees end up spending the same or more after they are no longer in the workforce. While these expenses may change -- you may spend more on healthcare services, for example -- you can't count on being able to get by on less

How to supplement your Social Security

Since you can't live on Social Security alone, the big question is, what are you supposed to do? 

To get an idea, look at the history behind Social Security. When it was created, it was meant to be part of a "three-legged stool" that supports retirees. The other two legs are a pension and savings. So, you'll need one or both of these to add to your retirement income in order to have enough.

Now, if you want a pension offered by an employer that provides guaranteed retirement income, you'll have to look hard for a job that offers one because many don't. Government or public service work is likely your best option to get a pension. But, if you don't want to limit your employment prospects, you're going to have to strengthen the other two legs of your stool so they are sufficient to support you.

This could mean taking steps to maximize your Social Security, such as claiming it later, which results in a larger benefit. But it will also mean figuring out how much you need to save and invest for your future. The sooner you set retirement goals and start working toward them, the more likely it is that you'll be able to produce the income you need to live a comfortable life even with Social Security benefits than are smaller than you may be hoping for. 

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