Your Social Security Can’t Do It Alone — You Still Need Other Retirement Accounts

As you go through your career, you pay Social Security taxes. When you retire, you become eligible to begin reaping the benefits of those taxes by receiving monthly payments. For some people, Social Security will be their primary income source in retirement.

Unfortunately for most people, though, Social Security alone won’t be able to hold them through retirement. That’s why it’s important to have other retirement income sources to supplement Social Security.

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How much will you need in retirement?

There’s no one-amount-fits-all regarding how much you’ll need in retirement. Different factors, like lifestyle and location, will influence the answer, but there are rules of thumb that can be your baseline starting point when deciding what amount works for you. One such starting point is the 80% rule, which states you should try to have 80% of your annual income in retirement to maintain your current lifestyle.

Social Security likely won’t be enough

The amount you receive in Social Security largely depends on when you retire relative to your full retirement age. Your full retirement age is based on your birth year.

Birth Year
Full Retirement Age
1943 to 1954
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
1960 or after

Data source: Social Security Administration.

No matter your full retirement age, you can begin receiving Social Security benefits as early as age 62 or delay your benefits until you reach age 70. If you retire at your full retirement age in 2022, the maximum monthly benefit is $3,345. Meanwhile, if you retire at 62 in 2022, the maximum is $2,364, and if you delay your benefits until 70, your maximum increases to $4,194.

Even if you were to delay your benefits until you reached 70 and received the maximum amount — something not likely to happen, considering the average monthly benefit is only $1,665 — you would be receiving just over $50,000 annually. If we follow the 80% rule, that means anyone making over $62,500 would be hard-pressed to maintain their current lifestyle. If you retired at 62 and received the maximum amount, you’d get just over $28,000 annually, which is only ideal for those making $35,000 or less. The average benefit is just under $20,000 annually, likely nowhere near enough for a lot of people.

Utilize other accounts

Thankfully, there are other accounts designed to help you save and invest for retirement. A 401(k) plan is employer-sponsored and the most popular type of retirement account. If your job offers a 401(k) plan, you should always take advantage of it. Not only do contributions lower your taxable income for the year, but there’s also a good chance your employer matches a certain percentage of your contributions. At a minimum, the lowest contributions you should make to your 401(k) is the maximum amount your employer will match; anything less is leaving “free” money on the table.

You shouldn’t stop at a 401(k), though. To really get the most of the resources available to you, it helps to utilize a Roth IRA or traditional IRA — or both. Whether you should use a Roth IRA or traditional IRA usually comes down to when you want to pay taxes. If you’re early in your career and your tax bracket is likely to increase, you should take advantage of a Roth IRA because you contribute after-tax money and take tax-free withdrawals in retirement. If you’re at the height of your career and this is likely to be your highest tax bracket, consider contributing to a traditional IRA, where you’ll possibly be able to deduct your contributions and lower your taxable income.

You should tackle saving and investing for retirement from all available angles. Retirement accounts are a great way to supplement Social Security income in retirement. When used correctly, they can ensure you can live financially comfortably and the life you envision in retirement.

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