Millions of seniors today rely on Social Security to cover their living expenses in retirement. And that's certainly not a bad thing.
What is problematic, though, is that a number of people end up retiring with no income to fall back on other than Social Security benefits. And those benefits will only replace about 40% of the average earner's pre-retirement wages. Most seniors need twice that much income to live comfortably, which is why retiring on Social Security alone is a dangerous thing.
But new data reveals that many Americans are not planning to rely too heavily on Social Security once their careers wrap up. And that means they may be less likely to end up financially stressed later in life.
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It's all about reasonable expectations
Many people struggle in retirement because they expect Social Security to cover all of their living costs. But according to Northwestern Mutual's most recent Planning & Progress Study, Americans are relying on Social Security to provide 28% of their overall retirement income.
That's the same percentage of income they expect to get from their retirement savings. And that also implies that people are, in fact, specifically setting money aside for retirement so they're not too dependent on Social Security.
Of course, the big question mark everyone will need to contend with on the Social Security front is benefit cuts. The program's trust funds are expected to run dry in a little more than 10 years. Once that happens, Social Security could cut benefits to the tune of around 20%.
But the fact that Americans are saving -- and planning to rely on savings -- means that they may be fairly well positioned to cope with Social Security cuts should they come down the pike. So all told, it seems like people have fairly reasonable expectations for the amount of income Social Security will provide them with.
It's always a good thing to save
No matter how much money you expect to get out of Social Security in retirement, it's important to go in with savings of your own. And if you're not close to retirement age, you can build up a solid nest egg with modest monthly contributions.
Socking away $200 a month in an IRA or 401(k) plan over 40 years, for example, will give you a nest egg worth about $622,000 if your invested savings deliver an average annual return of 8%, which is a bit below the stock market's average. And even if you don't have 40 years ahead of you to save, socking away $200 a month for 20 years at that same return will leave you with $110,000, which isn't a ton of money for retirement, but it's better than nothing.
It's important to know what to expect from Social Security so you're not left to scramble financially in retirement. If you're expecting those benefits to provide you with most or all of your income, it's time to change your line of thinking -- and come up with a different plan.
