[vc_row][vc_column][vc_column_text]Social Security benefits have been designed to help you cater for a portion of your daily expenses after retirement. As soon as you attain the eligible age of 62, you can expect to receive monthly checks from the SSA to replace a portion of the monthly paychecks you have just lost. However, your Social Security checks will not be solely responsible for a comfortable life after retirement. On average, experts say Social Security checks only make up for 40% of pre-retirement incomes.
This figure becomes even more insufficient for people whose pre-retirement incomes were above average and thus used to a different lifestyle. If you are in this category, you are likely used to a more comfortable lifestyle, and your Social Security benefits won’t be worth much to you. To avoid any unpleasant surprises upon retirement, you have to calculate how much your Social Security benefits will be worth and what you can do to cover the difference.
What Will the Social Security Monthly Checks Be Worth?
On average, Social Security benefits are able to replace only 40% of a retiree’s previous paychecks when they used to work. However, this estimate does not apply to all retirees. It only applies to workers whose earnings fall in the category classified as average. Some workers earn above average and spend more money than the average American household. People also have different standards as to what they describe as a “comfortable lifestyle” after retirement.
For example, the Bureau of Labor Statistics Consumer Expenditure recently estimated that average households headed by someone who is at least 65 years old spend around $50,220 annually. As a result, the $26,355 that these households receive yearly from the SSA amounts to around 52% of their expenses.
However, the calculation only considers the common household expenses of senior citizens. It doesn’t consider other factors, such as travel expenses, new hobbies, and other activities that some retirees look to embark on after retirement. The number of Social Security recipients in one household also affects the amount of money they can receive from SSA. Experts say families with multiple recipients have problems covering their expenses compared to homes with single recipients.
In addition, workers earning below the average use their Social Security paychecks to cover more expenses than others. With all these variables, it is impossible to generalize the worth of Social Security benefits for all categories of workers and retirees.
How to Estimate the Worth of Social Security Benefits for Your Situation?
Since we have ascertained that generalizing the worth of Social Security benefits for all situations is a fruitless venture, it is time to discuss how you can make a personalized estimate. You can start by creating a personal Social Security account. With this SSA resource, you can calculate an estimate of what you will receive from the SSA. You only need to input your current earnings, possible age of retirement, and other personal details. You can also adjust your income and age of retirement if anything comes up in the future.
Once you’ve got your estimated monthly benefit, you can multiply it by 12 to get your estimated annual benefit. Then, you can divide that by your estimated annual retirement expenses and multiply that by 100 to figure out what percentage of your income Social Security will cover.
After putting in the necessary details, the resource will give you a close estimate of your expected monthly Social Security benefits. You can use this sum to come up with the percentage of your annual income that you will get from Social Security. To do this, multiply the monthly estimate by 12 and divide the result by your estimated annual retirement expenses, and then multiply by 100. The result of this simple calculation will help you determine the percentage of your post-retirement expenses that Social Security will cover.
For example, if our fictional employee’s monthly estimate from the online resource is $2,000, and he/she wishes to spend $50,000 every year after retirement, then the calculation will look like this:
$2000 × 12 = $24,000.
$24,000 × 100 = 48%.
$50,000
Our employee’s Social Security will cater to 48% of their monthly expenses after retirement. It would help if you did your calculation to ascertain what to expect from the SSA after retirement. It is also advisable that you run the calculations at least once in two years because of changes in governmental policies and other factors that can change the figures.
How Do You Make up the Differences if the Estimate is Lower Than You Expect
There are very slim chances that your Social Security will exceed $25,000 annually. So, it is always important to have a Plan B that will make up the difference. Luckily, we have several options you can call Plab B that will help you live comfortably even after you retire. Your first option is saving money in a 401(k) account if you work with an organization that matches or adds to their workers’ 401(k) contributions. Your 401(k) contribution will be made in pre-tax dollars, so you make the most of every dollar.
Another option is opening and contributing to an Individual Retirement Account (IRA). IRAs will help you have a little bit more control over your savings and investments. They also come with some tax advantages.
A retirement calculator will help you figure out how much you need to invest in these accounts to cover the difference between your Social Security estimate and your post-retirement expenses. The calculator will request the estimated yearly growth rate of your investments. You should use a 5-6% growth rate. Your investments may do better than that, but it is safer to aim low and have a surplus than aim high and be disappointed later on.
If you will not be able to meet up with the calculator’s estimates, you may have to make a few changes. You may decide to either work for more years to make up the difference or reduce your post-retirement expenses. You can also look for other sources of income, such as a side job, or seek a better job that would pay you more.[/vc_column_text][/vc_column][/vc_row]
