The tricky thing about retirement planning is that it’s hard to anticipate what your costs of living will be like 15, 20, or 30 years from now. You may end up spending $1,000 a month on health care due to rising costs and multiple medical issues. Or maybe you don’t even spend half of that.
But while it’s hard to estimate your retirement costs when that milestone is decades away, there are steps you can take to plan for your senior years, like saving money and establishing an income strategy. And part of that last should include figuring out what role Social Security could play in your retirement.
Many seniors now depend on Social Security for most of their retirement income. Some even count on those benefits to pay everyone of their living costs once they stop working.
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You may be able to get by on Social Security alone. But whether that makes for an enjoyable retirement is a different story.
How do you want retirement to be?
The average senior in Social Security today earns $1,663 per month. Now, the monthly benefit you receive may be higher, lower or comparable. The amount Social Security pays you each month will depend on factors including:
- Your wage history, including the number of years you worked.
- Your filing age for Social Security.
If you have higher income, you may be in line for a monthly benefit that is much more generous than $1,663. Also, if you delay filing past full retirement age, you can increase your monthly benefit by 8% per year in the process, up to age 70.
So let’s say you’re entitled to a $3,300 monthly benefit for earning higher wages and for delaying your filing. If you have modest retirement goals, a paid-for house, and no major health issues, then you could live comfortably on that sum.
But if you’re looking for a monthly benefit closer to what the average senior earns today, that’s a different story. Even if you’re happy to stay close to home and don’t have a mortgage, being capped at $1,663 a month could mean skimping on basic luxuries like cable to cover essential bills. And that sounds like the opposite of comfortable.
The point, therefore, is that while it is possible for some people to maintain a decent standard of living using only Social Security as a source of income, it is generally not recommended. A better bet is to make an effort to build your own savings so that you have income to supplement those benefits.
If you saved $300 a month in a retirement plan for 30 years, and your investments generated an average annual return of 8%, which is a bit below the stock market average, you’d end up with about $544,000. And that, combined with even an average Social Security benefit, could leave you with enough money to enjoy the comfortable senior lifestyle you deserve.
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