In the course of your retirement planning, you're apt to factor Social Security into the equation. After all, you can expect some amount of money from those benefits. But how much of your former paycheck will Social Security replace? Probably less than you think.

Don't skimp on savings

Many people assume that Social Security will replace their former paychecks in full, but that's not correct. If you're an average earner, Social Security will replace about 40% of your pre-retirement income. If you're a higher earner, those benefits will replace an even smaller percentage.

Older person sitting on a couch, reading a book

Image source: Getty Images.

The good news is that you don't necessarily need to replace 100% of your former income once you stop working. As a general rule, seniors should anticipate needing 70% to 80% of their previous earnings to maintain a comfortable lifestyle. If you're willing to live very frugally during retirement, you can, of course, get away with less. But living on 40% of what you're used to probably won't cut it, even if you're willing to make some sacrifices.

In order to cover your expenses and enjoy yourself as a senior, you'll need to need to save independently for retirement to supplement your Social Security benefits. How much will you need to save? Well, that depends on your lifestyle choices. In general terms, it's good to end your career with 10 times your salary socked away in a retirement plan like an IRA or 401(k). This means that if you close out your career earning $80,000, you'd want $800,000.

But again, everyone is different. You may do just fine with a smaller nest egg. Or, you may need more than 10 times your ending salary saved up if your retirement goals include extensive travel and other hobbies that could prove costly.

The key, therefore, is to do the following:

  1. Map out your personal objectives for retirement. Figure out how you'd like to spend your days and where you want to live.
  2. Estimate your monthly living expenses.
  3. Figure out how much Social Security will pay you. You can check your annual earnings statement for an estimate by creating an account on the Social Security Administration's website. Keep in mind that the closer to retirement you are, the more accurate that number will be.
  4. Figure out how much you'll need in savings to bridge the gap between what you expect to spend every month and what Social Security will give. For example, if you think you'll spend $3,000 a month and get $1,500 from Social Security, you'll need $1,500 a month, or $18,000 a year, from savings. Assuming you follow the 4% rule for withdrawals, that means you'd need a $450,000 nest egg.

While Social Security may serve as a vital income source once you stop working, don't count on those benefits alone to support you during retirement. If you do, you may be in for a world of struggle.