Recently, I again encountered someone who mistakenly thought Social Security would replace their work income in retirement. I am not talking about the benefit amount they are entitled to receive. I mean, they really thought Social Security would replace their current income dollar for dollar once they retired. I was shocked!
In reality, Social Security was never intended to replace our total pre-retirement income. It was supposed to be extra income to complement our other retirement income sources and combat poverty. It was part of a four-legged income stool for retirement. Traditionally, those four legs were Social Security, a company pension plan, personal savings and investments, and a 401(k) or other workplace plan as a supplemental savings investment plan for workers. Today, most are lucky if they have two of the four legs of the stool.
The person I was talking with seemed incredulous when I told them that Social Security would only replace between 35% and 40% of their income if they were lucky. I think they thought I was teasing them. According to the Center on Budget and Policy Priorities, for a person who worked their adult life at average earnings, and retired at age 65 in 2022, Social Security benefits only replaced about 37% of past earnings. If you think you can live only on Social Security, try living for a month on about 40% of your current net monthly income.
Social Security is a vital part of our retirement income stream. We can maximize that income by waiting as late as possible to claim benefits. We can also maximize our retirement income by saving and investing as early as possible in addition to contributing to a workplace retirement plan. Having a plan and projecting that income will help.
One thing you can do to plan ahead and be prepared is visit the Social Security site at https://www.ssa.gov/myaccount/ and register for My Social Security. Review your name, earnings history, and projected benefit to make sure everything is correct. Knowing this information can help reduce surprises in the future when it’s time to retire. You can also track your earnings over your life and make a more informed decision about when to draw, and for what type of benefit you are eligible.
As an independent CERTIFIED FINANCIAL PLANNER™, I can help you plan for retirement and other goals. Contact me and let’s get started. #talktometuesday #education #Hireaplanner #savings #goals #retirement #MySSA #SocialSecurity #budget #CFPPro #LetsMakeAPlan