Retiring on Social Security alone could set the stage for years of financial struggles. Yet many seniors inevitably go that route and have a hard time managing their bills, as a result.
It's therefore encouraging to see that today's workers expect to be far less reliant on Social Security once they enter retirement. In a recent Schwab survey, workers said they expect their Social Security benefits to account for about 20% of their retirement income. Meanwhile, they expect 40% of their retirement income to come from savings in a 401(k).
Image source: Getty Images.
As for the remaining 40% of their retirement income, workers pointed to a mix of investments, part-time work, and pension benefits, among other things. But all told, it's really good to see that workers today are being realistic about Social Security. And those who expect to get most or all of their retirement income from Social Security may want to change their tune.
Don't set yourself up for failure
At present, Social Security benefits will generally replace about 40% of an average earner's pre-retirement wages. And it's common for seniors to need around twice that much income once their careers wrap up (though if you have lofty goals for retirement, replacing your income at 100% may be more desirable). That makes retiring on Social Security alone a bad idea.
But that 40% replacement-income figure also assumes that benefits are paid in full and aren't subject to cuts. Unfortunately, we can't count on that happening.
Social Security is facing a revenue shortfall as baby boomers exit the workforce at full speed. Once the program's trust funds run out of money, which is expected to happen as early as 2034, benefit cuts will be a real possibility if lawmakers don't arrive at another solution. We could pretty soon be looking at a scenario where Social Security is only able to replace a worker's pre-retirement income to the tune of about 30% or so.
Let's also remember that Social Security will take the place of 40% of the average earner's pre-retirement wages. If you're an above-average earner, your percentage of replacement income will be even smaller.
That's why it's so important to be realistic about Social Security -- and line up other income sources to go along with those benefits. That could mean aggressively funding a 401(k) or IRA, buying real estate and holding it as an income property, or planning to engage in long-term part-time work.
It also pays to work out a strategy for claiming Social Security that allows you to snag as high a benefit as possible throughout retirement. Delaying your filing until age 70 is one way to go about that. You can also look to take advantage of spousal benefits to score a higher Social Security payday.
Social Security might serve as a lifeline for millions of retired Americans today. But workers have it right when they say they anticipate their benefits constituting just 20% of their retirement income overall. It pays to follow that lead if you want to enjoy the comfortable retirement you deserve.
