How Heavily Should You Rely on Social Security?

Millions of seniors get a lot of their income from Social Security. But how heavily should you depend on your benefits once you leave your career behind? Will Social Security be enough to live on? Or do you need a backup plan?

The average benefit today

The average senior on Social Security today collects $1,557 a month. But that doesn’t mean you’ll be in line for the same benefit.

Image source: Getty Images.

The monthly benefit you’re entitled to during retirement will hinge on a couple of factors:

Your average monthly wages during your 35 highest-paid years in the workforce
The age at which you claim Social Security

You’re entitled to your full monthly benefit based on your earnings history once you reach full retirement age, or FRA. FRA is either 66, 67, or somewhere in between, depending on the year you were born.

Meanwhile, you can claim Social Security as early as age 62. Filing ahead of FRA will reduce your monthly benefit, while delaying it past FRA will increase it. Once you turn 70, your benefit can no longer grow.

Either way, the benefit you lock in will be eligible for annual cost-of-living adjustments, or COLAs. COLAs aren’t always so generous, though, so don’t expect them to raise your benefit substantially.

Now, getting back to the main question at hand — how much should you lean on Social Security? Well, it depends on what your monthly benefit looks like and the lifestyle you want to lead. But for the most part, unless you’re willing and able to live very frugally as a senior, it’s wise to have income outside of Social Security during your senior years.

If you earn a high wage during your career and delay your filing as long as possible, you may end up with a monthly benefit that’s well more than the average $1,557 Social Security recipients get today. But that may also mean that you’re used to living on a lot more income than the typical senior. And so getting by on Social Security alone may not be feasible.

Saving independently

As a general rule, you can expect Social Security to replace about 40% of your pre-retirement earnings if you take home an average income. But most seniors need more money than that to live comfortably. And so ideally, it’s best to not rely on Social Security alone for retirement, but rather, to save independently.

In that regard, you have options. If your company offers a 401(k) plan, you can sign up and contribute funds directly out of your paycheck. You may also be entitled to an employer match that puts free money into your account.

If you don’t have access to a 401(k), an IRA is another good bet. Though IRAs have lower contribution limits than 401(k)s, you can still amass a bundle of money by funding one consistently.

In fact, let’s say you manage to sock away $500 a month in any retirement plan over 30 years. If your invested savings generate an average annual 8% return, which is a bit below the stock market’s average, you’ll wind up with about $680,000. That should, in turn, allow you to supplement your Social Security benefits nicely.

As helpful as Social Security may be, it shouldn’t be an income source you depend on in the absence of other options. The sooner you realize that, the sooner you can start building savings that make it possible to enjoy retirement to the fullest.

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