There
are millions of seniors today collecting Social Security, and for many, those benefits no doubt spell
the difference between paying the bills and going underwater. But those
benefits have their limitations, and it's wise for pre-retirees to enter their
golden years knowing what to expect from Social Security.
An
estimated 72% of U.S. adults don't believe that Social Security will provide
enough income to cover their spending in retirement, according to a new TD Ameritrade survey.
And those same people are being realistic more so than pessimistic.
Social
Security's role in retirement
There's
no question that Social Security plays a big role in helping seniors stay
afloat financially. But one thing many folks fail to realize is that those
benefits are not designed to sustain retirees without additional income.
Case in
point: The average retired U.S. household spends $46,000 a year. Meanwhile, the average Social Security recipient collects a little over
$1,400 a month, or just under $17,000 a year. Clearly, that's a pretty sizable
gap. And the only way to bridge it is to have other income sources to tap on
top of those benefits.
Here's
another way to look at it: Once you retire, you can expect Social Security to
replace about 40% of your previous income. Most seniors, however, need about
double that amount to live comfortably. And when we think about the things that
tend to cost retirees a lot of money, like healthcare, housing, food,
utilities, clothing, and transportation, that makes sense.
In
fact, another common misconception about retirement is that living expenses
automatically drop during that period. But that's not always true, and in some
cases, they even go up. That's why you need to secure at least one other major
income stream on top of Social Security -- to avoid financial struggles when
you're older and more vulnerable.
Supplementing
your Social Security benefits
What income
sources might you tap in retirement on top of Social Security? First, there's
your nest egg, the size of which will depend on your saving and investing
habits during your working years. Currently, you can contribute up to $18,500 a
year to a 401(k) if you're under 50, or $24,500 if you're 50 or older. If you
don't have access to a 401(k), you can contribute up to $5,500 annually to an
IRA if you're under 50, or $6,500 if you're 50 or older.
Now,
many folks don't come close to maxing out either account type on a yearly
basis. But if you make a point of setting aside something each month, and give yourself a long enough savings
window, you stand to come out with a decent pile of cash to access in
retirement.
Additionally,
the 8% average return referenced above assumes a stock-heavy portfolio (8% is
just below the stock market's historical average). Play it too safe, and your savings won't grow as substantially.
If
you're lucky enough to have a pension through your employer, that'll be another
income source to access when you're older. Similarly, if you're willing to work
in some capacity or are able to generate rental income from a property you own,
that's another way to supplement your Social Security payments. The key,
however, is to go in knowing full well that those benefits alone won't cover
the bills.
Though
Social Security serves as a lifeline for so many retirees, it has its
shortcomings. The fact that 72% of adults don't think it will cover all of
their bills in retirement is a good thing, as it means they're better
positioned to save independently or come up with another plan to avoid falling
short later in life.
The
$16,728 Social Security bonus most retirees completely overlook
If
you're like most Americans, you're a few years (or more) behind on your
retirement savings. But a handful of little-known "Social Security
secrets" could help ensure a boost in your retirement income. For example:
one easy trick could pay you as much as $16,728 more... each year! Once you
learn how to maximize your Social Security benefits, we think you could retire
confidently with the peace of mind we're all after.
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