One For The Money

• Eligibility for Social Security [02:19]
• Is Social Security enough? [03:16]
• Retirement doesn’t mean lower living expenses [06:32]
• Will Social Security run out? [08:46]
• Estimating your benefits [15:03]

Social Security is an essential aspect of retirement planning, providing a source of income not affected by market fluctuations. Given its significance, Americans need to have a thorough understanding of Social Security. To receive Social Security benefits, individuals must contribute by paying FICA taxes. Employees and employers each pay 6.2% up to a certain level of income. A self-employed individual is responsible for paying the employer and employee portions of Social Security.

Unfortunately, living on Social Security alone leaves people on the brink of poverty. According to the Social Security Administration, 21% of married couples and about 44% of unmarried people rely on Social Security for 90% or more of their retirement income. Social Security was never meant to provide for a comfortable retirement. Rather, it is intended to help ensure lower-paid workers do not have to retire in relative poverty. 

Social Security retirement benefits will replace only about 40% of your pre-retirement income if you have average earnings. Your Social Security benefit is determined by calculating your average monthly income over your lifetime. This figure is then divided into three portions using a formula, with the lowest portion being given the most weight. The result is that the less a person earns while working, the more income Social Security replaces.

Many assume that Social Security will be enough because their living expenses will reduce in retirement. Unfortunately, expenses don’t go down as much as one might expect. More and more people are taking mortgages into retirement. Homes require regular repairs and maintenance, and some of those repairs can be very expensive. Transportation costs will remain about the same, as well as everyday household expenses. 

In retirement, expenses for healthcare and leisure activities increase significantly, with healthcare being particularly costly. A couple, on average, spends over $250,000 on health care in retirement. Consequently, people are expected to need 70-80% of their pre-retirement income to live comfortably in retirement. Social Security doesn’t provide enough to meet that need, which is why people need to supplement Social Security with 401k or IRA savings.

Securities and Advisory services offered through LPL Financial. A registered investment advisor. Member FINRA & SIPC.

• Fear Over Social Security’s Future Leads Some to Claim Retirement Benefits Early - WSJ
• SSA
• What Is Social Security Tax? Definition, Exemptions, and Example
• Social Security Benefit Amounts
• How much of my income will Social Security replace?
• When to Take Social Security - Avoiding a Potential $200,000 Mistake, Ep #41