Many seniors today look to Social Security as an important source of retirement income. But for some seniors, it's their only source.
If you're wondering whether it's feasible to live on Social Security alone, you'll need to get an estimate of your monthly benefit and see what that number looks like. You can access that information on your annual earnings statement, which is available by creating an account at SSA.gov.
But it might also help you to know that the average Social Security recipient today collects a monthly benefit of about $1,559. Granted, that number will rise in 2022 once next year's cost-of-living adjustment takes effect. But right now, the typical senior on Social Security gets about $18,700 a year in benefits. And chances are, that's not nearly enough money to cover your bills.
Why falling back on Social Security alone isn't wise
Some people are quick to assume that their living expenses will drop dramatically once they retire. In reality, yours might only drop slightly or even stay the same. That's why seniors are generally advised that during retirement, they'll need about 70% to 80% of their former income to stay afloat.
Social Security, meanwhile, will replace about 40% of your pre-retirement earnings if you make an average salary. So if you bank on it as your only income source during your senior years, you'll clearly have a gap to grapple with.
That's why it's so important to save for retirement on your own or secure another income source outside of those monthly benefits. Some people don't have a lot of wiggle room in their paychecks to aggressively fund an IRA or 401(k). If you're one of them, you're not necessarily doomed during retirement -- as long as you plan on having income that isn't limited to your monthly Social Security check.
What might that income look like? It could come in the form of working 15 hours a week for a local business or a monthly rent you collect by renting out the downstairs of your home.
To be clear, saving for retirement is an important step you should make every effort to take. But if you're unable to save a lot, you still have options.
That said, if you give yourself a lengthy savings window, you may be surprised at how much wealth you'll be able to grow in a retirement plan. If you sock away $200 a month over 35 years and invest your savings heavily in stocks, you might enjoy an average annual 8% return. That's a bit below the stock market's average, and it would leave you with a total nest egg worth close to $414,000.
Look outside of those benefits
The money you receive from Social Security may end up making a huge difference for your retirement. But if you don't secure another income stream, you may be forced to live on very little. Funding an IRA or 401(k) could be your ticket to financial security as a senior, but if you're not looking at much in the way of savings, have another backup plan so you don't wind up cash-strapped.