The average social security recipient today only receives a lot of this income – The Fool Motley

Millions of seniors now perceive social security and many depend on these benefits for the bulk of their incomes. If you plan to do the same thing in retirement, chances are you will not be doing much to save independently at the present time. But before deciding to settle for social security as the sole or principal source of retirement income, know this: these benefits have never been designed to support retirees. In fact, the average beneficiary currently receives only $ 1,461 per month, or $ 17,532 per annum. If this does not seem like a lot of money (which should not be the case), then consider this as your alarm clock to start saving for yourself.

The role of social security in your retirement

Social security is intended to supplement your retirement income and not be your only source. If you are an average employee, you can expect your benefits to replace about 40% of your income before retirement. However, most seniors need almost double that amount to live comfortably. When you think about retiree spending, it makes sense.

Just as you need a roof, a means of transportation, food, clothing and health care during your working years, you also need all these things in retirement. The same goes for utilities, cable, communications (think of your mobile phone and your internet service), and even for your hobbies. It is therefore ridiculous to think that you will keep 40% of your previous income while maintaining a standard of living similar to the one you are used to. And even if you are being willing to cut back on certain expenses, living solely on social security, would probably require radical changes – changes that you probably will not like.

Therefore, a better bet is to work out the constitution of a savings when you can and use social security as an additional source of income. Currently, you can contribute up to $ 19,000 a year to a 401 (k) if you are under 50, or $ 25,000 a year if you are 50 or older. If you do not have a 401 (k) per job, an IRA is your best choice, and you can invest up to 6,000 USD a year if you are under 50, or 7,000 USD per year if you are 50 or older. .

Granted, if you are not used to saving money, it may not be possible to maximize the type of account, at least not at first. But saving even a small amount of money over time can help you create a beautiful part of your wealth for the future. Example: saving $ 300 a month for 35 years will bring you about $ 500,000 for retirement if you invest your savings with an average annual return of 7% (which is more than feasible if you have a long investment window). Make $ 500 a month and you will have close to $ 830,000, all things being equal.

Do not rely solely on social security

Applying for social security without your own savings is a good way to prepare for a financially stressful retirement. That said, if you are approaching your golden age without making a lot of savings and you can not catch up, you can at least be smart to increase your profits. This involves waiting at least your retirement age (66, 67 or somewhere in between these two ages) to collect at least social security, or, more ideally, to defer benefits after the age of retirement to increase them by 8% to age 70). You should also check your earnings record to make sure the Social Security Administration has the right information for you. The last thing you want is a lower retirement benefit due to a simple clerical error.