If I Could Give Retirees One Piece of Advice on Social Security, It Would Be This

Key Points

• It's important to be realistic about what Social Security will pay you in retirement.

• If you expect to be able to live off of your benefits alone, you may need a reality check.

• Aim to get the bulk of your retirement income from savings, and use your Social Security as extra.

• The $23,760 Social Security bonus most retirees completely overlook ›

It's not an unusual thing for people to retire mostly or solely on Social Security. After all, saving for retirement is not easy, especially given how inflation has soared in recent years.

But if you retire on just Social Security, you may be in for a world of financial pain. That's because those benefits may replace a lot less of your former wages than you'd expect them to.

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The Social Security reality check all retirees need

You may be expecting your living expenses to decrease once you retire. And that's not unreasonable.

If you've been in your home for a long time, you may be mortgage-free by the time your career wraps up. And if you don't have a daily commute, you may be able to go from a two-car household to a single car.

Still, as a general rule, retirees are told to anticipate needing 70% to 80% of their former income to maintain a comfortable lifestyle. There's obviously wiggle room in that formula based on your retirement needs and goals. But if you think Social Security is going to get you to that point, you're wrong.

Social Security will only replace about 40% of your pre-retirement income if you earn an average wage. And if you're a higher earner, you can expect even less replacement income from Social Security.

Not only that, but Social Security is facing the possibility of benefit cuts in less than a decade. Lawmakers have successfully prevented benefit cuts in the past, but that doesn't mean they'll be able to do so this time around.

If benefit cuts happen, Social Security might then replace a significantly smaller percentage of your former income, leaving you cash-strapped at a time when you deserve to be enjoying life instead of struggling financially. That's not a situation you want.

Carve out your own path to financial security in retirement

It's easy enough to say you'll fall back on Social Security for retirement income. A better bet, though, is to try to build up a strong nest egg so that you get most of your future income from your own savings. That way, you can use Social Security as more of a supplement. With the program's future being uncertain, that's really your safest bet.

How do you build up that solid nest egg? Your best bet is to start funding an IRA or 401(k) plan in your 20s, which should give your money a lot of time to grow.

Also make sure to invest your money for growth. That means loading up stocks and ETFs (exchange-traded funds) that are likely to gain value over time. Though this strategy is not without risk, if you give yourself a decades-long savings window, you have time to ride out repeated market downturns.

Best of all, if you give yourself many years to save, you shouldn't have to part with a huge sum of money each month to build a giant nest egg. Let's say your retirement portfolio generates an 8% return each year, which is a bit below the stock market's average. Let's also assume you end up with a 40-year savings window.

If you contribute $250 a month to your retirement plan during that time, you could end up with about $777,000. If you're able to make it $350 a month, that bumps you up to close to $1.1 million. And with $500 going into your savings each month, you could retire with over $1.5 million.

Although many retirees today get most of their income from Social Security, you don't want that to be your situation if you can avoid it. Saving well for retirement could make your senior years far more enjoyable and stress-free. So when it comes to Social Security, your best move is to use it to supplement your nest egg, and not the other way around.

The $23,760 Social Security bonus 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 help ensure a boost in your retirement income.

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