Millions of older Americans today get a benefit each month from Social Security. And a 2020 report by the National Institute on Retirement Security found that 40% of Americans have only Social Security to rely on for retirement income.
I have a very different plan for retirement, though. And it's one that has me using Social Security for one specific purpose.
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Extra money to enjoy
There are plenty of retirees who need their Social Security benefits to buy groceries, pay for housing, and cover the exorbitant cost of healthcare. But that's not my intention. Rather, I plan to spend my Social Security benefits on hobbies and enjoyment.
I don't want to rely on those benefits for essential bills because I have no idea how much monthly income I'm actually in line for. That's not just a function of my age and the fact that I'm decades away from even being able to claim Social Security. Rather, it's a combination of not knowing when I'll want to take benefits and what benefits will even look like.
It's not a secret that Social Security is facing a funding shortfall that could result in sweeping benefit cuts. And it's unclear whether lawmakers will be able to prevent that unwanted scenario.
Because of these factors, I refuse to take chances with my retirement income. The last thing I want is to work hard all of my life, only to have to skip buying eggs in retirement because the price is up or not follow doctors' orders and miss medication doses because I can't afford a full month's worth of pills. So I'm making sure to save as much money for retirement as I can and not planning to rely on Social Security at all.
Be realistic about Social Security
Some people might say that I'm going to too much of an extreme with regard to my plans for Social Security. The reality is that we all know that benefits aren't going away completely. Even if benefits are cut, Social Security will still pay something.
But this approach to retirement planning actually gives me more peace of mind. And since I'm willing to work hard now and make sacrifices that allow me to save more, there's no need for me to change my view on Social Security.
That said, you don't necessarily need to go to the same extreme as I've chosen. It's OK to factor Social Security into your retirement income, but don't make the mistake of overestimating how much those benefits will pay you.
Create an account on the Social Security Administration's website and get an estimate of your monthly benefit so you have an idea of what to expect -- even though that number can change as retirement nears. Also, know that Social Security will only replace about 40% of your pre-retirement earnings if you bring home an average wage -- and that's without benefit cuts.
Once you have the right information, you can decide how you'll spend your Social Security benefits in retirement. But if you play your cards right, you might land in a situation where that money is yours to spend on all of the fun stuff while your nest egg does the heavy lifting.
