If you worked for many years and paid taxes on your income, there's a good chance that come retirement, you'll be eligible for a monthly benefit from Social Security. And the amount you'll be entitled to on a monthly basis will hinge on different factors. These include the amount of money you earned during your career and the age at which you sign up for benefits.
But one thing you don't want to do is rely too heavily on Social Security for income during retirement. If the following signs apply to you, you're probably at risk of falling into that trap.
Image source: Getty Images.
1. You expect Social Security to cover most of your living costs
Social Security might help you cover certain bills in full during retirement, but should you expect your benefits to cover all, or even most, of your living costs? Not at all.
If you earn an average salary, you can expect the benefits you receive from Social Security to replace about 40% of your pre-retirement wages. But most seniors can't live on just 40% of their former income.
In fact, you probably know that 40% of the salary you're used to won't cut it in retirement. What you may not know is that that's all the replacement income you can expect from Social Security -- and that assumes the program's finances hold steady, which may not be the case.
2. You're not factoring in Social Security cuts
Social Security should replace about 40% of your pre-retirement wages if you're an average earner -- as long as benefits aren't cut. But unfortunately, that possibility exists, since the program is facing a major funding shortfall.
If you're not even accounting for the possibility of Social Security cuts, then you're probably putting too much weight on the benefits you think you'll be in line for. In that case, you may be in for a rude awakening.
3. You're not making any effort to build up a nest egg
Some people have had no choice but to hit pause on retirement-plan contributions over the past few years. They either took a financial hit during the pandemic or needed to keep up with raging inflation. But if you're well into your career and haven't tucked away even $100 in an IRA or 401(k) plan, then you may be leaning too heavily on Social Security to bail you out as a retiree.
Don't make a huge mistake
You may end up with a fairly generous Social Security benefit in retirement, especially if you make a point to delay your filing to boost your monthly payments. But that doesn't mean you shouldn't have other income sources available during your senior years.
Even if Social Security benefits aren't slashed down the line, you might still struggle immensely if those monthly payments are your sole retirement income stream. And the last thing you want is to spend the last years of your life pinching pennies constantly and worrying about how you're going to pay your bills.
