Around 33% of Americans have nothing saved up for retirement. Statistics also show that 30% of people aged 55 and older are in the same boat, and the reason why most people are reluctant to save for retirement boils down to Social Security.
According to the National Academy for Social Security, over 25% of Americans aged 65 and above rely on Social Security as their sole income for retirement.
However, while Social Security is beneficial and can help seniors stay afloat, there’s a considerable danger in relying too much on it. If caution is not taken, many people may end up being short of cash in retirement.
Social Security is tailored to replace about 40% of your pre-retirement income. Typically, you may be expecting your living cost to reduce once you retire, but that’s not most likely the case. For one thing, you’ll have more free time on your hands and may end up spending extra on leisure activities and entertainment. You are also going to have healthcare to worry about, and that’s where most retirees get thrown off balance.
Data from HealthView Services, provider of healthcare cost projection software, shows that the average 65-year-old couple may incur $377,000 in medical expenses throughout their retirement.
It’s even higher for younger couples, with 55-year-olds having to spend an average of $466,000 on healthcare, while a 45-year-old couple spends more than $592,000 in healthcare costs throughout retirement. You’ll even spend more if you have any health issues.
With all of this, it’s clear that Social Security won’t be enough, especially as recipients receive $16,000 annually and $1,341 monthly. Even if each spouse gets $16,000 annually in Social Security, that will be $32,000. How do you then afford $377,000 in healthcare for 20 years? That’s like $18,850 on medical costs yearly! If both spouses earn a combined $32,000 annually in Social Security, they’ll be left with just over $13,000 monthly to cover other expenses.
Even if you try to limit your spending, there are fixed expenses like electricity, transportation, and housing. An average American spends about $934 for rent monthly. You haven’t even covered other necessities like food and clothing and other minor expenses. You can’t solely rely on Social Security, and that’s just it.
Time to start saving
If you are convinced that $16,000 a year isn’t adequate, then it’s time to start saving for your retirement. Even if your retirement is just a few years away, you can still save a significant sum.
People 50 and above are eligible to save up to $25,000 a year to 401(k) and $6,500 to IRA. If you can max out both, you’ll have over $30,000 extra in retirement.
It’s even better if you are still in your 30s or 40s, as you have a greater opportunity to save. Saving $250 monthly for 20 years will provide you with $137,000 in retirement- assuming your investment generates an 8% return.
If you’re already in your 60s and have next to nothing saved up, consider postponing retirement for a few years to save some extra money. Alternatively, you can consider working part-time while in retirement to supplement your Social Security benefits.
No matter how prudent you are, don’t make the mistake of relying on Social Security for your retirement. Social Security should play a role, but you should have another source of income to mitigate the risk of running out of money.