With retirement costs skyrocketing all the time, people are understandably interested in how much Social Security will give them. Many believe that these guaranteed monthly checks will help them cover most of their expenses when they retire, but they may be disappointed.
Below, we’ll take a look at how the government planned to use Social Security for you and what to do if you’re concerned about a retirement savings deficit.
How Far Do Your Social Security Checks Go?
Your Social Security check is based on your income during your working years, but is not intended to replace your paycheck. According to the Social Security Administration, it should only provide about 40% of pre-retirement income for average workers, and could be even less for some people.
The maximum Social Security benefit in 2022 is $4,184 per month. This may be a living wage for some, but to earn it you must have earned the modern equivalent of $147,000 in at least 35 separate years. That is not realistic for most people.
The average Social Security benefit is about $1,564 per month, or about $18,768 per year. That’s closer to what most people can expect, but it may still be too high for younger workers.
The Social Security Fund reserves are nearly exhausted and the latest estimates predict that they will run out of money by 2034. If that happens, the program could face benefit cuts if the government doesn’t come up with an alternative funding strategy. There’s no way of knowing what will happen, but it’s not unreasonable to think the benefits could shrink by as much as 24%.
Based on all of this, it’s not realistic to assume that Social Security will cover all or even most of your expenses when you retire. If you want a comfortable future, you should take steps now to increase your personal savings.
How do you get the money you need for your retirement?
You can count on Social Security benefits as long as you’ve worked long enough to earn 40 credits (where one credit equals $1,510 in income in 2022 and you can earn up to four credits a year) or you’re married to someone who is eligible. comes. But you need to make retirement savings a priority if you want to live comfortably when you’re older.
Get into the habit of making regular monthly contributions to a 401(k), IRA, or other retirement account. If you haven’t already, find out how much you need to save for retirement and use this as your guide. But be prepared to adjust this if your plans for your future change.
If you can’t save as much as you’d like right now, you have a few options. You can ask for a raise, start a side job or look for a new job. You could also work part-time after retirement, perhaps switching fields to something more in line with your interests.
Postponement of retirement is another option. This gives you extra time to save while also reducing the length – and cost – of your retirement. Plus, it gives your savings extra time to grow before you need to withdraw it.
How To Maximize Your Social Security Benefit
When it comes to Social Security, consider deferring benefits. Each month you claim benefits below your full retirement age (FRA) — 67 for most workers today — your checks shrink, while deferring Social Security past your FRA increases your checks until you hit the maximum benefit at 70.
Postponing benefits may require you to self-fund your retirement for a few years, but if you’re in your 80s or older, you’ll likely get more money out of the program than you would if you signed up early.
Married couples also need to coordinate to decide when each person signs up. If both people have earned a similar amount during their working lives, they should each wait as long as possible. But if someone has earned significantly more, it is more important for the higher earner to defer benefits. The lower earner can start early to help the couple financially if needed. Once the higher earner signs up, the Social Security Administration will automatically switch the lower earner to a partner benefit — up to 50% of the higher earner’s benefit at their FRA — if it’s worth more than what the lower earner is already getting.
Everyone’s retirement savings strategy will look a little different based on their goals and finances. So it’s up to you to find out which of the above suggestions makes the most sense for you right now. Create and implement a retirement plan if you have not already done so. Then visit it again in a few months to decide if you need to make any changes.