The Social Security Fact Many Future Retirees Learn Too Late
Written by Christy Bieber for The Motley Fool -> Making a mistake about the amount of your Social Security benefits could undermine your financial security. It's best to understand the role of Social Security early on when you're making your retirement savings plans. For many
Making a mistake about the amount of your Social Security benefits could undermine your financial security.
It's best to understand the role of Social Security early on when you're making your retirement savings plans.
For many Americans, Social Security is central to their retirement plans, and they're anticipating these benefits to become a key income source. Despite this, however, future retirees often don't know basic facts about the program.
This is a problem if you anticipate that Social Security will do more for you than it actually will. There is one key fact many future retirees learn too late, and not knowing it can create a significant risk of financial hardship.
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Future recipients need to know that Social Security benefits are designed to replace only about 40% of pre-retirement income. So if you are counting on it to be a major or primary source of income in your later years, not understanding this detail can be a huge problem. You would either face a 60% cut to your income at a time when your healthcare costs might be going up substantially due to age, or you would need other money beyond Social Security to live on in your later years.
If Social Security is only going to replace 40% of your income, then you must make a retirement plan that takes this factor into account. Specifically, you must decide how much of your income you want to replace and how much you must have invested in a 401(k) or other retirement account to live comfortably as a senior.
Traditionally, many experts recommend replacing around 70% to 90% of your pre-retirement earnings. You may want to err on the higher end of this, or even try to replace 100% of what you were making, if you hope to enjoy a lot of expensive hobbies in retirement, like traveling.
