According to a recent publication, Social Security recipients receive about $1,519 as monthly benefits from Social Security. Recipients older than 65 years experience a deduction of $144.60 from their monthly benefits, and this deduction is for their Medicare Part B premiums. After the Medicare premium deduction, retirees depending on Social Security benefits now have monthly benefits of $1,374.
With these monthly benefits, can you pay for all your expenses? Is it enough for you to retire on $1,374 every month? If you rely on Social Security during retirement, you need to answer these questions to live a comfortable life after retirement. It would help if you made an effective retirement plan that gives you more than just Social Security benefits.
Why are average monthly benefits low?
If you are still receiving monthly income from your job, you can check your My Social Security Account online for your Social Security statement; you will notice a projection that will benefit you in the long run. The reason is that Social Security assumes that your future earnings will be at the same rate as your current earnings. Social Security projects that your earnings will remain constant until you reach the federal retirement age (FRA). Social Security projection is not exactly deceiving you, but its projection is too generous for a financially stable future.
The projection gives you some hope because of the following reasons. Firstly, you can claim your benefits at age 62, which is below the FRA. When you collect your Social Security benefits earlier than the federal retirement age, your monthly benefits will be permanently reduced for the rest of your life. Permanent reduction implies that you will not receive the full benefits as your statement projects.
Secondly, your Social Security benefits calculation is based on your highest thirty-five years of income in the workforce. If you retire early for any reason, your statement projection may not be feasible because you will miss some of your high-income years. Early retirement can affect your future projected earnings, which will reduce the benefits you will receive.
Why the statement protection may get worse
In addition to those reasons above, Social Security will reduce further even with its present low benefits level. If the government does not interfere, the benefit trust will be empty by 2035, which will reduce the average monthly benefits by 20%. Moreover, the projections were made using data from 2019 before the pandemic affected the United States. This implies that the economic meltdown was not taken into consideration when the projection was made.
What you need to do about Social Security
Firstly, you must not make the benefits your only source of income when you retire. The stronger you build your retirement plan, the easier it becomes to fill the gap in Social Security, regardless of what causes the gap.
Secondly, you need to know that the earlier you start your plan, the easier it will be to cover the Social Security gap. You will gather more wealth when your investment compounds over a long period. If you have limited time before you retire, you will rely more on your savings instead of growing your contributions. Depending on the type of lifestyle you want to live during retirement and the duration of retirement that you anticipate, you can estimate the total amount of money you need to save if you’re going to actualize your retirement goals.
When you want to make your retirement plan, you can use the thumb rule to get started. Under this rule, you can spend about 4% of your portfolio during your first year after retirement, and you can increase your withdrawals yearly after the first year. If you have a balanced portfolio, this withdrawal strategy will make your savings last for a minimum of thirty years. Using this rule means that you will need your annual shortfall approximately twenty-five times if you want your money to last longer.
You should start saving earlier so that it is easy to achieve your retirement goals. If you save for a more extended period, you will be putting aside less money every month. Funding your retirement account is the most crucial step you need to take before you are forced to figure out if you can retire on a monthly benefit of $1,374.
