The average Social Security recipient today collects about $1,915 a month, or roughly $23,000 a year. If that doesn't seem like a lot of money, well, it isn't.
The reality is that many people falsely assume they can retire comfortably on Social Security alone. The fact is, those benefits will only replace about 40% of your preretirement income if you're an average wage earner. If you're a higher earner, your percentage of replacement income could be a lot smaller.
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That 40% figure also assumes that benefit cuts don't become necessary for Social Security. Unfortunately, that's a big possibility right now, given the program's financial situation.
You should also know that it's common for seniors to need more like 80% of their former income to enjoy a comfortable lifestyle. And Social Security alone clearly won't get you there. But if you play your cards right, you can set yourself up for a millionaire retirement, where Social Security can serve as just a tiny portion of your total income.
It's all about consistent saving and investing
Amassing $1 million or more for retirement can seem like a daunting endeavor. And over the course of just a decade or so, it could be tough. But if you begin funding a retirement plan in your 20s, you could set yourself up with bundles of wealth pretty seamlessly.
In fact, let's imagine you contribute $500 a month to an IRA or 401(k) over a 40-year period. Let's also imagine your investments in that account deliver a 9% average annual return, which is a notch below the stock market's average.
If so, you could end up retiring with just over $2 million. And while saving $500 a month isn't the easiest thing, it's also not unreasonable.
As of the first quarter of 2024, the median weekly income among workers aged 25 to 34 was $1,056. Multiply that by 52 weeks, and we get about $55,000 a year. Setting aside $500 a month for retirement savings purposes means parting with around 11% of your income -- again, not an easy thing, but far from impossible. And if your wages exceed $55,000 a year, it's even more doable.
Set yourself up with the right investments
Not only should you save and invest consistently throughout your career to amass a sizable nest egg, but you should also set up a portfolio that continues to pay you once your retirement has kicked off. If you load up on dividend stocks and REITs, or real estate investment trusts, those assets can not only help you grow retirement wealth, but also enjoy extra income once you're no longer working.
Retiring on Social Security alone has the potential to disappoint you. If you want to make the most of retirement, push yourself to save year after year, and choose your investments carefully. With any luck, you'll end up in a situation where you can live largely on your savings and look to Social Security as a series of bonus payments you have the freedom to spend as you please.
