According to the Federal Reserve, as of 2022, Americans ages 65 to 74 had an average retirement savings balance of $200,000. But many older Americans are approaching retirement without any savings, relying instead on Social Security to cover their senior living costs.
Doing so could result in a pretty miserable retirement. That’s because Social Security can end up paying you a lot less money than you might think.
What the average monthly Social Security benefit looks like today
The average retired worker today receives $1,920.48 per month in Social Security. That’s just over $23,000 per year.
If that number is shocking to you, you’re probably not alone. It is a major misconception that Social Security replaces the majority of workers’ early retirement income. If you earn an average wage, you can expect your monthly benefits to replace about 40% of your previous income.
Now, most seniors can take a 20 to 30 percent pay cut in retirement, especially since certain expenses tend to drop when they don’t have to travel to work. But there is a big difference between a 20% to 30% pay cut and a 60% pay cut.
If you’re only retiring on Social Security, the latter is what you might be looking at. And that could mean leading a very frugal lifestyle, while you would rather enjoy your retirement to the fullest.
How to prepare for a financially healthier retirement
If you don’t want to spend most of your retirement worrying about money, you need income on top of Social Security. And there you have several options.
One is to save well for retirement during your working years — or catch up if you’re close to ending your career and aren’t super excited about your 401(k) or IRA balance. The good news is that employees over the age of 50 can make catch-up contributions to these accounts to make up for lost time.
It’s also a good idea to purchase investments that will continue to pay you well after you retire. Municipal bonds meet this requirement because, by their nature, they are generally less risky than stocks, and the interest they pay is always exempt from federal taxes. But it can also be a good idea to hold some dividend stocks for extra income after retirement.
You can also look into working part-time as a retiree for an income boost. And collecting Social Security doesn’t prevent you from making money at a job.
Once you reach your full retirement age for Social Security purposes, you can essentially earn any amount of money without the risk of having some of your benefits withheld. However, if you file for Social Security before full retirement age, you will be subject to an income testing limit.
And if you don’t like the idea of having to take a traditional part-time job after retirement, join the gig economy. That could ensure you’re doing something you enjoy, on a schedule that works well for you.
Just because the average monthly Social Security benefit today is $1,920.48 doesn’t mean you’ll receive that when you retire. Your monthly benefit depends on your lifetime salary and the age at which you register. But no matter what your personal Social Security check looks like, it’s a good idea to supplement it with outside income to avoid financial worries.
The $22,924 Social Security bonuses that most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could give your retirement income a boost. For example, one simple trick can earn you as much as $022,924 more… every year! Once you learn how to maximize your Social Security benefits, we think you can retire confidently, with the peace of mind we’re all looking for. Click here to find out how you can learn more about these strategies.
Check out the “Social Security Secrets” »
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Here’s Today’s Average Monthly Social Security Check — And What Your Retirement Could Look Like If It’s Your Only Income Originally published by The Motley Fool
