There are plenty of seniors who end up retiring on Social Security alone. But whether they're faring well is a different story.
Seniors on Social Security have lost an astounding 36% of their buying power since the year 2000, according to estimates from the nonpartisan Senior Citizens League. And that's largely because Social Security's cost-of-living adjustments haven't managed to adequately keep pace with inflation.
But that aside, one thing you should know well ahead of retirement is that if you're an average earner, Social Security will only replace about 40% of the paycheck you're used to collecting. And that assumes that benefits aren't cut in the future, which, as of now, is a known possibility, due to the program's financial challenges.
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That's why it's important to think about the role Social Security will play in your retirement ahead of time. And it's just as important to be realistic about the amount of income it will provide.
You need income from other sources
The typical senior on Social Security was collecting about $1,835 a month, as of April 2023. That's an annual income of roughly $22,000 a year. It's also not a very large amount of money to live on.
The monthly benefit you're entitled to from Social Security may be larger, as it'll be based on your personal wage history. Also, you can snag a higher monthly benefit by delaying your filing past full retirement age. In fact, if that age is 67 and you claim Social Security at 70, you can lock in a 24% boost to your monthly benefits for life.
But either way, don't expect Social Security to cover all your senior living expenses. It won't even come close. That's why it's imperative that you set yourself up with additional income.
That added income could take on different forms. Saving in an IRA or 401(k) plan during your working years is a great way to supplement your Social Security benefits. But if you're nearing retirement and haven't built up much savings, you can work part-time as a means of generating income once your main career wraps up.
These days, we have a thriving gig economy that allows income-seekers to work independently while earning money consistently. That's certainly an option worth pursuing as a retiree.
Another option is to start a business of your own if you're willing to put in the effort and time. You may find that doing so is a great way to keep busy in retirement while getting to do something that's both financially rewarding and mentally fulfilling.
It's perfectly OK to factor Social Security into your financial plans for retirement, but don't expect to get most or all of your income from those benefits. Instead, make sure that Social Security is only one of several income sources you have available so you can live your best life once your career comes to an end.
