There are some seniors who get every dollar of retirement income from Social Security. And there are many who get most of their retirement income from the monthly benefits they collect.
That's not a great situation to land in, though. Not only is Social Security not designed to replace your paycheck in full, but benefit cuts could be on the way in a little over a decade. So when it comes to Social Security, it's important to keep your expectations in check.
But what role should the program play in your retirement? The answer is that it's a little complicated.
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Don't write off benefits completely
While it's true that Social Security is facing some funding issues that could lead to eventual benefit cuts, the program is not about to just disappear. And even if Social Security is forced to slash benefits, as of now, we're not talking about 50% cuts. Rather, seniors may be looking at cuts that are closer to 20%.
Of course, for those who get the bulk of their income from Social Security, that could be a catastrophic loss. But if you're in the process of planning for retirement, you don't have to cross out Social Security as a source of senior income entirely. What you may want to do, however, is take your most recent benefits estimate (which you can access by creating an account on the Social Security Administration's website) and slashing it by 20% in the course of your calculations.
Don't expect too much from those benefits, either
Social Security cuts aren't guaranteed to happen. Lawmakers could be looking at a mass poverty crisis if many seniors take a large hit to their main source of income. And so there's a chance benefit cuts will be avoided, at least to some degree.
But even if benefit cuts don't come down the pike, you should know how much replacement income to expect from Social Security. And the answer, if you're an average wage earner, is around 40%.
If you're thinking, "That's not a very large percentage," you're right. Many people can't afford to live on just 40% of the paycheck they're used to. And that's why it's important to secure other retirement income sources.
For you, that could be a combination of part-time work and withdrawals from an IRA or 401(k) plan. If you're entitled to a pension from work, consider yourself lucky, because that's yet another income source you can look to. And if you own a home, you might manage to turn it into a retirement income stream by renting out portions you don't use.
Run the numbers ahead of time
All told, it's important to know how Social Security fits into your retirement. The answer is that it shouldn't be your only or main income source, but you don't need to write it off, either.
A good bet is to figure out what sort of lifestyle you want to lead and see how much income that will require. Then, assume you'll get about 80% of your normal Social Security benefit to play it safe.
The rest of the money you need may have to come from your savings, especially since many workers these days don't have a pension coming their way. The sooner you draw that conclusion, the sooner you can make an effort to save accordingly so you're able to enjoy your senior years without financial worry.
