These days, a good number of older Americans get most of their income from Social Security. Some retirees even look to those benefits as their only income source.
But new TIAA data reveals that younger workers have a different attitude toward Social Security. And frankly, it's a breath of fresh air.
A more grounded approach
TIAA reports that 65% of Americans aged 22 to 34 anticipate relying mostly on retirement savings accounts to cover their senior living expenses. Only 47% of people in that age range expect income from Social Security.
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The reality is that Social Security isn't going away. As such, younger workers can and should expect to collect a monthly benefit of some sort. But the amount of income they'll get from Social Security is the big question.
Social Security is facing a financial shortfall that could result in mandatory benefit cuts in as little as a decade. Lawmakers will likely try to prevent those cuts, but that may not be possible given the program's fiscal woes.
Even if benefit cuts don't arrive, the reality is that it's much better to expect to live off your savings in retirement than Social Security. Without cuts, Social Security will replace about 40% of the typical worker's pre-retirement paycheck. But for most retirees, that's just not enough.
Furthermore, Social Security recipients are eligible for an annual cost-of-living adjustment (COLA) so they can maintain their buying power as inflation drives living costs upward. But those COLAs have historically fallen short for seniors.
Even at times when COLAs are generous, such as 2023's notable 8.7% boost, seniors still tend to believe that their COLAs aren't as effective as they should be. That's yet another reason to depend more on personal savings in retirement than Social Security.
Start saving from a young age
It's a good thing to plan on getting most of your retirement income from the nest egg you build -- not Social Security. If anything, those benefits should supplement your 401(k) or IRA withdrawals -- not the other way around.
But if you want to set yourself up for a financially sound retirement, start funding your nest egg at a young age. If you invest $400 a month over a 40-year period and your invested savings deliver an average annual 8% return, which is a bit less than the stock market's average, you'll end up with a balance of over $1.24 million.
Of course, it's also a good idea to know what sort of Social Security benefit you may be in line for. Granted, any estimate you get today won't account for potential benefit cuts.
But if you create an account on the Social Security Administration's website, you can access a recent earnings statement and see what monthly benefit may be coming your way in the future. You can then use that information to come up with a savings target that's more likely to set you up with the retirement income you need to enjoy a comfortable lifestyle.
