Do you want to retire in the near future, but have nothing saved for retirement? Never! While Social Security is not intended to replace anyone’s entire retirement income, most people are eligible to receive a certain amount of benefits in retirement.
The question is, given today’s cost of living, will Social Security alone be enough to live a modest life in retirement?
Probably not.
Eye-popping numbers
Not to discourage you, but this year the average Social Security benefit that a retiree will receive is just over $1,900 a month, or about $22,800 a year. That’s a far cry from the $72,967 it was in 2015, according to the U.S. Census Bureau. Average household expenditure In 2022, there will be shortages of basic necessities such as food, clothing and shelter.
But both numbers need to be put into perspective: A typical monthly Social Security payment only covers the benefit of one average retiree, but there may be two retirees living in a household. Also, the average household’s expenses over-reflect the needs of a family of three or more, which will naturally have more expenses than a household with one or two retirees. And retirees are more likely to own their homes outright, while working-age people are often still paying mortgages or rent.
Still, even if you live frugally, a monthly income of $1,900 is unlikely to cover all your expenses in retirement.
Incidentally, the Census Bureau reports that nearly half of Americans between the ages of 55 and 66 have no retirement savings whatsoever, a finding echoed by the Federal Reserve. Clearly, many retirees are either relying solely on Social Security or will soon be doing just that.
The good news is that even if you haven’t saved enough or anything for retirement on your own, there are some things you can do to help put more money aside for your future.
catch up
Don’t panic. You’re unlikely to make wise decisions when you’re in a hurry. Instead, take the time to think things through to close the gap between what you have and what you need before you act.
Those in this predicament fall into two main categories: those who are already retired and receiving a pension, and those who are not yet retired but plan to retire soon.
If you have already started receiving Social Security benefits: teeth It is possible to pause it and restart it at a later date (to scale up), but there are limitations to this option, one of which is that you must have started receiving it within the last 12 months, and you will have to pay back any money you have already received.
That means not only will you need a lump sum of money, but you’ll also need another source of income until your benefits start coming back — something you probably don’t have if you’re worried about living off Social Security alone.
So the option that’s more feasible for most Social Security recipients is also the most obvious option. Keep working.
Image source: Getty Images.
Admittedly, this isn’t what someone thinking about retiring wants to do at this stage in life, but if you’re going to get into debt or lose your home, it clearly makes sense to earn some income through work. This includes starting your own small business.
You can also earn a significant amount of money without affecting your social security contributions. Full retirement age This year, you can earn up to $22,320 before the Social Security Administration (FRA) begins to cut your benefits. And even then, the program will only deduct $1 from your benefits for every $2 you earn over this limit. These earnings limit rules become much more generous in the year you reach your FRA. And because all such deductions are credited to you, you won’t lose your benefits completely if you work.
If you haven’t yet retired and are not collecting Social Security benefits, your first best option is to delay your retirement date. This will give you more time to save and also increase your eventual Social Security benefit. You can file as early as age 62, but each year you wait will cost you more. Add 5% to 8% to your monthly profits.
Regardless of which scenario applies to you, know that there is no added benefit to waiting until age 70 to claim Social Security benefits, nor is there any penalty for earning other forms of income after reaching FRA.
A scenario best avoided with careful advance planning.
Of course, the best way to avoid finding yourself in such a difficult situation is to avoid getting into it in the first place.
However, the following challenges remain: bankruptcy Health problems can eat into your savings, and you might not have the luxury of putting extra money away in your retirement savings account. This is not a criticism of people who plan to only receive Social Security benefits in retirement.
But whenever possible, it’s worth doing whatever you can now to generate income that will exceed your future Social Security benefits. Even scraping together an extra $100 a month to invest in a stock index fund could be worth more than $200,000 in 30 years, at an average annual return of 10%.
Understand that time can be a big burden for investors, which is why it’s so important to start as soon as possible, even if it’s just starting small.
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