Social Security is an important retirement income source for seniors, but it is also a complicated benefits program. Many decisions you make can affect the amount of money you receive from it each month, including your age when you file for benefits and how many total years you work before you leave your job for good.
But while it's helpful to know the ins and outs of Social Security, many people don't. If you aren't familiar with the nitty-gritty, there's one crucial fact that you absolutely must know no matter what. Here's what it is.
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This is the single most important Social Security fact to know
If you know nothing else about Social Security, the one thing you must know is that these benefits are designed to only replace about 40% of pre-retirement income.
If you expect that these benefits are going to be enough to live on, you are going to be very disappointed. They were not meant to be your sole support source, since they were designed to work in conjunction with both a pension and savings. And if you don't have these other income sources, you'll take around a 60% pay cut. This is just not sustainable for most people, especially as healthcare expenses tend to rise dramatically later in life.
Now, it is true that you can make an impact on your retirement benefits by doing things like waiting until age 70 to claim them. This would allow you to avoid early-filing penalties and earn delayed retirement credits so your standard benefit would go up. But even though you can raise your standard benefit by as much as 8% annually if you delay your first payment after full retirement age until the age of 70, this does not change the fact that you cannot live on Social Security alone. And the reality is that many people won't be able to put off their claims long enough to get their maximum monthly benefits anyway.
The harsh truth is that the average monthly Social Security retirement benefit is only $1,785.94 as of April 2023. And you are going to have a very hard time trying to live on anything close to that amount.
Why knowing this is so important
Understanding that Social Security is not enough to live on is crucial so you can make sure you do not retire until you have some money to supplement your benefits.
Most experts recommend being able to replace 80% to 90% of pre-retirement income, so aim to put enough into your 401(k) account or IRA account to make that happen. If you have a pension, this can also supplement Social Security -- but that's not the case for many people, so the sooner you start saving to provide yourself with retirement income, the better.
If you are nearing retirement age already and don't have money to live on besides Social Security, you may want to put off leaving work to save more. Or if that's not possible, you'll need to consider downsizing and downgrading your lifestyle to accommodate the fact you'll have to live on a fraction of your previous earnings.
The sooner you learn this one key fact about Social Security, the better you'll be able to prepare for your future and ensure that you aren't left with less than you need to support yourself in your later years.
