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What Role Will Social Security Play in Your Retirement?

By Maurie Backman - Oct 22, 2018 at 7:04AM

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The good news: You can count on Social Security to be around in the future. The bad news: It probably won't provide as much income as you think.

Social Security is a financial lifeline for millions of seniors today. In fact, as of 2016, nearly two-thirds of recipients rely on the program to provide half of their monthly income, while roughly one-third count on it to supply 90% of their income or more. Those benefits should be factored into your retirement budget, but if you make the mistake of leaning on them too heavily, you're apt to struggle down the line.

Can you live on Social Security alone?

Many people go into retirement thinking that Social Security can provide the bulk, if not all, of their income. In reality, the program was never designed to do such a thing.

Social Security will replace about 40% of the average senior's pre-retirement income. For above-average earners, however, it'll replace even less.

Man's hand holding a Social Security card.


How much replacement income should you aim for in retirement? The precise answer will depend on your personal goals and lifestyle, but as a general rule, you should plan on needing about 80% of your former earnings to live comfortably. That figure takes expenses like healthcare and leisure into effect, keeping in mind that these two spending categories, in particular, have a tendency to rise rather than fall in retirement.

Therefore, while you certainly can count on Social Security to provide some income during your golden years, don't expect it to foot the bulk of your bills. This especially holds true if future benefits wind up facing cuts as the program's trust funds run out over the next decade or so.

Securing your own financial future

While cutting back on living expenses can help you stretch your Social Security income further, relying on those benefits alone is pretty much a recipe for disaster. Rather than put your finances at risk, take steps to save independently so that your nest egg ultimately provides the income you need.

Currently, workers under 50 can contribute up to $5,500 annually to an IRA and $18,500 to a 401(k). Folks who are 50 and over, meanwhile, get a catch-up provision that raises these limits to $6,500 and $24,500, respectively.

Of course, maxing out a 401(k) is easier said than done, but if you start saving early enough in your career, you won't have to. On the other hand, if you reach your 50s without so much as a dollar in savings, you'll need to find a way to substantially ramp up your savings to avoid falling short in retirement.

Let's say, for example, that you're 40 years old with no retirement savings. If you start setting aside $500 a month between now and age 67 -- which would be your full retirement age for Social Security purposes -- you'll have $447,000 to your name, assuming your savings returns an average annual rate of 7%, which is more than feasible if you go relatively heavy on stocks. That $447,000, in turn, will provide about $18,000 a year in income if you withdraw about 4% of your savings balance each year. And given that Social Security pays the average recipient about $17,000 a year, that's a pretty good combination.

But watch what happens if you wait until age 55 to start setting aside that same $500 a month. All other things being equal, you'll end up with just $107,000 because you'll have lost out on so many years of compounding. In fact, at that point, you'll need to max out a 401(k) to come close to reaching the $447,000 mark.

Of course, there's another option at play: extending your career. Doing so can help in several ways. First, it'll give you more time to build your nest egg, all the while leaving your existing savings untouched. Secondly, it'll give you the opportunity to hold off on filing for Social Security past your full retirement age, thereby boosting your benefits by 8% a year in the process until you turn 70.

Even if Social Security benefits are cut in the future, you can count on the program to supply a decent chunk of your retirement income. At the same time, be realistic about the role those benefits will play in your overall financial picture and make sure you don't rely on them too heavily to the point where you neglect your savings.

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