By 2022, Americans ages 65 to 74 will have an average retirement savings balance of $200,000, according to the Federal Reserve. But many older Americans are approaching retirement with no savings and instead relying on Social Security to cover senior living expenses.
However, doing so can lead to a pretty miserable retirement. That’s because Social Security may pay you less money than you think.
What is the current average monthly Social Security benefit?
The average retired worker currently collects $1,920.48 per month in Social Security. That’s more than $23,000 a year.
If these numbers shock you, you’re probably not alone. It’s a misconception that Social Security replaces the majority of workers’ preretirement income. If you earn an average wage, you can expect monthly benefits to replace more than 40% of what you earn.
Today, most parents can manage to take a 20% to 30% pay cut in retirement, especially since certain expenses tend to decrease if they don’t have to go to work. But there is a big difference between a 20% to 30% pay cut and a 60% pay cut.
If you retire only on Social Security, the latter is what you see. And that might mean living a very bare-bones lifestyle if you’d rather retire in full.
How to set yourself up for a better retirement financially
If you don’t want to spend most of your retirement worrying about money, you need income on top of Social Security. And you have a lot of options there.
One is to save well for retirement during your working years — or roll over if you’re nearing the end of your career and don’t really like your 401(k) or IRA balance. The good news is that workers over the age of 50 can make contributions to the account to make up for lost time.
It’s also a good idea to set yourself up with investments that continue to pay you in retirement. Municipal bonds fit the bill, as they are generally less risky than stocks, and the interest paid is always exempt from federal taxes. But it might be a good idea to hang on to some dividend stocks in retirement to boost your income.
You can also look into working part-time as a retiree to supplement your income. And collecting Social Security won’t prevent you from earning money from a job.
In fact, once you’ve reached full retirement age for Social Security purposes, you can earn any amount without risking having some of your benefits withheld. However, if you file for Social Security before your full retirement age, you will be subject to income test restrictions.
And if you don’t like the idea of ​​having to take on a traditional part-time job in retirement, join the gig economy. This allows you to do what you love on a schedule that works for you.
Just because your current average monthly Social Security benefit is $1,920.48 doesn’t mean you’ll get a pension. Your monthly benefit will depend on your lifetime wage and your age at entry. But no matter what your personal Social Security check looks like, it’s a good idea to plan to supplement your income outside to avoid financial worries.
$22,924 The Social Security bonus is completely overlooked by most retirees
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See “Secrets of Social Security” »
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Here’s Today’s Average Monthly Social Security Check — and What Your Retirement Could Look Like If It Was Only Your Income Originally published by The Motley Fool
