Social Security is an important source of retirement income for seniors, but it’s also a complex benefits program. Many decisions you make can affect how much you get out of it each month, including your age when you apply for benefits and the total number of years you worked before you quit for good.
But while it’s helpful to know the details of Social Security, many people don’t. If you are not familiar with the muzzle, there is one important fact that you absolutely must know, no matter what. That’s what it is.
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This is the single most important Social Security fact to know
If you don’t know anything else about Social Security, one thing you should know is that these benefits are only designed to replace about 40% of your pre-retirement income.
If you expect these benefits to be enough to live on, you will be sorely disappointed. They weren’t meant to be your only source of support, as they were meant to work in conjunction with both superannuation and savings. And if you don’t have these other sources of income, you’ll be taking a 60% pay cut. This is simply not sustainable for most people, especially since health care costs tend to rise dramatically later in life.
Now, it’s true that you can affect your retirement benefits by doing things like waiting until age 70 to claim them. This will allow you to avoid early filing penalties and earn deferred retirement credits to increase your standard benefit. But while you can increase your standard benefit by up to 8% a year if you delay your first payment until after full retirement age until age 70, that doesn’t change the fact that you can’t live on Social Security alone. And the reality is that many people won’t be able to delay their claims long enough to receive their maximum monthly benefits anyway.
The harsh truth is that the average monthly Social Security retirement benefit is only $1,785.94 as of April 2023. And you’re going to have a very hard time trying to live on anything close to that amount.
Why is this important to know?
Understanding that Social Security isn’t enough to live on is critical so you can make sure you don’t retire without the money to supplement your benefits.
Most experts recommend that you should be able to replace 80% to 90% of pre-retirement income, so aim to put enough into your 401(k) or IRA account to make this happen. If you have a pension, this can also supplement Social Security, but for many it doesn’t, so the sooner you start saving to provide yourself with retirement income, the better.
If you’re nearing retirement age and don’t have enough money to live on besides Social Security, you can delay working to save more. Or if that’s not possible, you should consider downsizing and downsizing to account for the fact that you have to live on a fraction of your previous earnings.
The sooner you learn this important fact about Social Security, the better you can prepare for your future and make sure you don’t end up with less than you need to support you in your later years.
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