Social Security is a major source of income for the millions of seniors who collect benefits during retirement, and while there’s nothing wrong with including those benefits in your long-term financial plans, you shouldn’t make the mistake of thinking that those benefits alone will suffice. to traverse your golden years. This is why.
1. The average monthly benefit is probably lower than you think
The minimum wage in the US is $ 7.25 an hour, which means that if you work 40 hours a week, 52 weeks a year, you take home $ 15,080 in annual income, not much. Well, it may surprise you to learn that the average Social Security benefit is not much higher. Today’s typical older adult receives $ 1,503 per month in benefits. Annually, that’s $ 18,036. Granted, that still counts as being above the poverty line, but it doesn’t deny the fact that it’s not a lot of money to live on, especially if you’re used to earning much more than the minimum wage.
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2. Benefits may be reduced in the future
Social Security faces a major financial crisis in the not too distant future. In the coming years, the program will owe more money in benefits than it expects to raise in payroll tax revenue as baby boomers leave the workforce shortly and not enough young workers come in to take their place. In that scenario, Social Security can take advantage of its trust funds to make up for an income deficit, but only as long as those funds actually have money in them.
According to the latest projections from the Social Security Trustees, the program’s trust funds will be depleted in 2035 and, unfortunately, the high levels of unemployment during the COVID-19 pandemic that have stripped Social Security of valuable income from the payroll tax could make that unwanted the milestone comes even earlier. Once that happens, the benefits could be reduced by more than 20%.
3. You May Be Forced To Retire Before You Are Eligible To Claim Benefits
An estimated 48% of workers are forced to finish their careers early, according to the Employee Benefits Research Institute. And that’s only a good reason not to trust only Social Security. Although you’re only entitled to your full monthly benefit based on your earnings history once you reach full retirement age (which is 66, 67 or somewhere in between, depending on the year you were born), you can start by collecting Social Security from the age of 62, although at a reduced price. But what if you are forced to retire at age 60 or even earlier? Without an additional source of income, what will you do then?
You need your own savings
All of the above points come down to one important message: It is crucial that you save for retirement independently rather than assuming that Social Security will provide you with all the income you need for your senior years. If you’re 40 and save $ 300 a month in a 401 (k) or IRA from now until age 67, you’ll end up with $ 268,000 for retirement, assuming your investments in that account generate an annual average of 7% return (Which is a reasonable assumption for a retirement plan that is heavily invested in stocks.) Earn $ 400 a month and you will be sitting with $ 357,000.
While fortunately Social Security isn’t in danger of bankruptcy and disappearance, if you rely too heavily on those benefits, you’re likely to be disappointed and penniless. And don’t you deserve better?
