57% of Americans do not use this ridiculously simple retirement tool – The Motley Fool


More than 64 million Americans will receive some form of social security in 2019, according to the Social Security Administration. And among benefit recipients, almost half of married couples and about seven out of ten unmarried beneficiaries will depend on these benefits for at least 50% of their income.

In other words, social security benefits can make or break your retirement.

Now, depending on your benefits to the extent of your abilities is not necessarily a bad thing. Although you should not rely on this money as the main source of income, it is a good cushion to supplement your own retirement savings. The problem is that most people do not know how much they will receive in retirement benefits.

Social security statement next to a social security card and a calculator

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Through the mySocialSecurity program, the Social Security Administration provides income statements to give workers an idea of ​​how much income they have earned this year. advantages. However, according to a report from the Social Security Administration, only 43% of those registered online to receive these reports consulted them in 2018, which represents a dramatic decrease compared to the 96% of people who viewed their statements in 2012. This means that 57% of people who do not check their tax returns may not be aware of their future benefits.

If you are still in a few decades away from retirement, you may think that you do not have to worry about social security yet. But since your benefits will be at least a part of your retirement income, you need to know how much you will receive from Social Security to know how much you need to save for retirement.

Include social security in your retirement number

Before you can start saving for retirement, you must have a goal in mind. Enter your retirement number – or the total amount you should have saved when you retired. The easiest way to find this number is to play with a retirement calculator that will give you a rough estimate of what you might need. (Do not forget though that no calculator will give you a 100% accurate answer, so try several different solutions to get a range of possible numbers to aim for.)

Another quick and easy way to get a rough estimate of your needs is to use the 25 rule. It is based on the 4% rule, which states that you can withdraw 4% of your pension fund in the first year. after retirement, adjust this number each year to account for inflation. The rule of 25 therefore essentially allows you to work backwards. So, if you know you will need about $ 50,000 a year in retirement, multiply that by $ 25 and you will need a $ 1.25 million nest egg.

This is a daunting figure, even for the super savers. However, this number represents only the total amount you would need to spend your retirement – it does not count for the portion of your income that will come from Social Security.

Suppose, for example, that you expect to receive about $ 1,800 per month, or $ 21,600 per year, in social security benefits. If you know that you will need about $ 50,000 a year to cover all your expenses and that the social security will cover $ 21,600, that means you will only have to record the remaining $ 28,400 a year. Multiply that number by 25 to get a new retirement number, which is about $ 710,000. Although there is still a lot of money, it is much less overwhelming than $ 1.25 million.

When you should not rely on social security

All that being said, it is always good to save as much as you can so that your retirement dreams are not broken if you do not get as much as you want in social security benefits – – Because There is a good chance that this will happen.

Because baby boomers are retiring en masse, the system draws more money than taxes. Because of this shortage, benefits may need to be reduced by about 20% by 2034, according to the Social Security Administration.

Does this mean that you can not rely on social security? No, the system will not completely collapse (assuming everyone is still paying taxes) and you still have benefits – it may just not be what you expected. So, while you are calculating your number of retirees and calculating how much you need to save, keep in mind that you might receive less than you expected from Social Security.

In addition, checking your social security returns can work as an alarm clock for those who are not doing enough to save. If you are late in saving because you expect Social Security to cover all of your retirement needs, you risk a rude awakening when you find that your estimated monthly benefits are most likely not enough to cover all your expenses. expenses.

Saving money is hard enough, but social security makes things a little easier. While this is not the wisest idea to depend on your benefits for most of your retirement income, there is no harm in being strategic in the way you plan your retirement in order to optimize your savings.

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