Social Security benefits don’t cover a person’s entire cost of living during retirement. Anyone who is counting solely on Social Security to fund their retirement needs to realize that immediately and take steps to improve their financial picture, says USA Today in the article “Social Security is not the financial lifeline you think it is.”
The average annual Social Security benefit adds up to $17,748. Compare that to your annual working income, and you’ll see how the numbers work—or don’t. That’s barely the minimum wage in most states. Trying to live on that amount alone might mean a world of change to your lifestyle, including many sacrifices.
Social Security was designed to provide about 40% of most people’s pre-retirement income. Most seniors need at least double that to live comfortably. Even you’ve been able to pay off your mortgage during your working years, chances are you’ll still need a good income to maintain your quality of life. The amount of money saved by not working is pretty minimal. You still need clothing, a car and money for home maintenance, property taxes and utilities. This doesn’t include health care expenses, which will go up if you previously had most of your health care costs covered by your employer.
Here are steps to take now, if your 401(k) or IRA isn’t ready for retirement:
Aggressively cut back on living expenses. No, it won’t be easy or fun, but it may prepare you for some of the changes that will come without an increase in your retirement savings. Downsizing is one way to make up some cash, but there are other changes: stop going out to dinner, get rid of cable services, stop taking big vacations and cancel any monthly expenses you don’t need, like unused gym memberships.
If these cuts and others add up to $500 a month, invest that money in a stock-heavy portfolio that can yield around 7% over the next seven years. You might be able to generate $52,000, if all goes well.
Consider getting a second job. If you can earn around $1,000 a month and save it instead of $500 a month, you may be able to gather $100,000, if the money is invested for seven years and yields a 7% return.
You may need to extend your career, something many Boomers are doing. Working even a few years past the retirement date you had in mind, will give you the time to pad your nest egg, leave your existing savings untouched for longer, and save more. If you add two more years to the seven years in the examples above, you could find yourself with $144,000 for retirement (again, assuming that 7% return).
Social Security is a valuable source of income for seniors, but it is not enough to live on. Confronting that fact sooner and doing something about it, will give you more time to deal with how to save for retirement.
Reference: USA Today (December 4, 2019) “Social Security is not the financial lifeline you think it is”