According to many financial experts, retirees need about 75% of their annual preretirement income to maintain a comfortable lifestyle. Social Security benefits replace some, but not all, preretirement income for the average worker. In fact, the Center on Budget and Policy Priorities says that the replacement rate for an average wage earner who worked all their adult life, had average earnings, and retired at age 65 is about 37%. However, higher income earners replace less of their income because the Social Security benefits formula is progressive. Lower earners receive a higher percentage of their average wages.
Data from the Social Security Administration says that the average annual Social Security benefit for all retired workers in 2024 was $23,712 a year. That works out to $1,976 per month. That sum can be helpful in meeting some expenses, but it doesn’t leave much room for many extras.
Social Security was conceived as a safety net, a financial defensive against poverty in retirement. It was, and is, intended to help pay for the essentials. However, if you want a better quality of life in retirement, it may not be wise to count only on Social Security.
The reality is that you have to take responsibility now and focus on building your own retirement savings. You can use the savings you accumulate while you are working to help make up the difference between what Social Security may provide and what you’ll need to live comfortably when you retire.
Take Advantage of the Power of Compounding
Contributing to your employer-provided retirement plan is an important first step, but it can also be important to keep increasing the amount you contribute over time. The more you put into your plan, the greater your potential retirement income. Long-term compounding may turn even a small contribution increase into a higher plan balance at retirement.
If you are interested in exploring what steps you need to take to help you on the road to a financially secure retirement, be sure to reach out to a financial professional, like the team at Trust Point.
