Planning to Survive on Social Security Alone? Time to Head Back to the Drawing Board

There’s no one-number-fits-all amount when it comes to how much you’ll need in retirement. However, there are some rules of thumb you can use as baselines to help you get an idea of how much will make sense for you. The first is the 80% rule, which says to maintain your current lifestyle in retirement, you should aim to have 80% of your annual income.

Once you know how much you’ll need annually, you can use the 4% rule to determine how much you’ll need to save to ensure you don’t outlive your savings. To find this amount, multiply 25 by your annual income needed in retirement. For example, if you make $100,000 — meaning you’ll need $80,000 in retirement — you would aim to save $2 million.

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Determining your monthly benefit

Your Social Security benefit depends on a few different factors, but one of the main ones is your full retirement age (FRA). Your FRA is based on your birth year and is as follows:

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. Chart by author.

You don’t have to wait until your FRA to take Social Security benefits, however — you can begin at age 62. If you choose that option, they’ll be reduced. Benefits are reduced by 5/9 of 1% for each month you claim before your FRA, up to 36 months. If you retire and start taking benefits more than 36 months before your FRA, any months over 36 will reduce your amount by 5/12 of 1% each month.

Social Security may not be enough

Although Social Security can be a great resource of retirement income for many people, it likely won’t be enough by itself. Even if you delay your benefits past your FRA — which can be done until you reach 70 (and increases the monthly payout) — you may find yourself short of your target monthly retirement income amount. Here are the maximum payouts that Social Security is making in 2022, depending on when you begin taking benefits:

Age 62: $2,364
Full Retirement Age: $3,345
Age 70: $4,194

If you were to receive the maximum allowed monthly payout, you’d receive around $28,000, $40,000, or $50,000, respectively. Following the 80% rule, those totals would only suffice for people currently making $35,000, $50,000, or $62,500, respectively.

Unfortunately, however, most people won’t receive close to the maximum benefit. For 2022, the average monthly payout is $1,619. At just under $20,000 annually, the average payout won’t be enough for many people to get by.

Use other accounts to supplement Social Security

When you’re saving and investing for retirement, one of the best things you can do is use multiple accounts. If your employer offers a 401(k) plan, absolutely take advantage of it — especially if they offer an employer match. If your company offers a 401(k) match, it’s smart to try to contribute at least enough to get the full matching amount. It’s as close to “free” money as you’re going to get.

Even outside of an employer-sponsored 401(k) plan, consider using other tax-advantaged accounts, like IRAs, to invest for retirement. IRAs aren’t provided through an employer and operate similarly to a regular brokerage account in that you can invest in any stock or index fund that’s publicly traded. IRAs have lower annual contribution limits than 401(k)s but provide key tax breaks that make them worthwhile.

With a Roth IRA, you contribute after-tax money and can take tax-free withdrawals in retirement. You can’t take tax-free withdrawals from a traditional IRA in retirement, but you may be eligible to deduct some of your contributions, depending on your income.

The amount of money you receive from Social Security may not be enough for you to live comfortably in retirement. If you supplement it by using other retirement accounts, however, you can put yourself closer to achieving your financial retirement goals.

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