If you don't have a nest egg by the time you're ready to leave the workforce, you may anticipate relying on your Social Security benefits to provide the income you need to cover the basics. Unfortunately, if this happens to you, you could be left facing serious financial struggles that leave you coping with a lot of insecurity in your later years.
That's because the income Social Security provides will likely fall far short of what you expect.
Let's see what your annual earnings would look like if you tried to live on Social Security without any supplemental income after you leave the workforce.
Here's what your income would be on Social Security alone
Social Security benefits vary based on average wages over the course of your lifetime. However, if you receive the average benefit in 2022, you'd end up getting $1,657 per month. This means if you lived only on Social Security with no supplementary savings, your annual income would be just $19,884. This is just $564 above the 2022 federal poverty level of $19,320.
Living off of income barely above the poverty level would leave you with little to cover your essential costs, including expensive healthcare services that seniors often rely on as they develop age-related medical issues. And because the typical retiree's income would be just slightly above the poverty level, qualifying for government benefits that could help cover expenses may not be possible.
Of course, it's possible that you'll end up with more than the average benefit. This can happen if your earnings were above average during your career as Social Security benefits are based on a percentage of your average wages in your 35 highest-earning years. However, keep in mind that if you've been earning more throughout your career in order to qualify for a higher Social Security benefit, you may also have a history of spending more as well, so your benefits still may not be enough to maintain your standard of living.
How can you make sure you aren't relying on Social Security alone?
The bottom line is, Social Security benefits aren't sufficient for most people to live on without other income, because they're only meant to replace around 40% of pre-retirement income. Few people can comfortably take a 60% pay cut without drastic lifestyle changes. That's why experts recommend having enough money to replace around 80% of what you were earning before retirement.
To ensure you've got enough other savings to live on, you'll need to develop other income streams as a senior. This could be a pension if you still have a job offering one, but that's not an option for most people. Relying on savings is the best solution for most, but to have enough in your nest egg, you should set goals early for how much to invest toward your later years and work to build a substantial sum over the course of your life.
By investing in a retirement plan as soon as possble and sticking to carefully set retirement goals, you won't be left struggling to live on a poverty-level income during your later years.