The One Social Security Trap I Refuse to Fall Into | Personal-finance


(Maurie Backman)

I was recently talking to a former colleague who plans to retire very soon. When I casually asked him if he planned to work in any capacity during retirement, his answer was an adamant no.

But I happen to know that he doesn’t have much to his name in retirement savings. And because of this, I’m really worried for him.

Like many seniors today, my former colleague plans to get the bulk of his retirement income from Social Security. Now, on the plus side, because he earned a decent salary during his career, he’s eligible for a larger benefit than the average recipient. He’s also retiring on the later side and hasn’t yet signed up for benefits, so he’ll get a boost for delaying his filing.

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But still, my concern is that my former colleague will have a hard time making ends meet in retirement because he’s so reliant on Social Security. And that’s a trap I’m making every effort to avoid.

A dangerous assumption

Many people assume that they’ll get by just fine on Social Security in retirement. But in reality, those benefits will only replace about 40% of the average wage earner’s pre-retirement income.

Seniors commonly need more like 70% to 80% of their former earnings to live comfortably. And not saving independently and falling back on Social Security often means not having enough money at their disposal.

That’s not a situation I want to land in. That’s why I’m making every effort to max out my retirement-plan contributions year after year.

Would I rather keep some of that money and use it for things like vacations or conveniences that would make my life easier as a frazzled full-time working mom? Sure, I’d love to. But I also know that I really can’t count on Social Security to provide too much income for me, so this is what I need to do to avoid being cash-strapped down the line.

On top of the fact that Social Security won’t come close to replacing the average earner’s pre-retirement wages in full, benefit cuts are now on the table as the program faces a revenue shortfall. And if those cuts come down the pike, Social Security will provide even less replacement income for seniors. That’s a scary thought — so I’m doing what I can to not have to stress over it.

Meanwhile, I plan to my former colleague to consider some amount of part-time work in retirement in the absence of having a decent amount of savings. He’s a smart, capable person, and I know he has many options for consulting on a part-time basis in his current field, which is fairly lucrative. Or he might want to try dabbling in a new field to keep things interesting, even if it pays less. I think that’s fine, too.

But all told, I don’t want to end up in a similar position to the one he’s in. And if you feel the same, do yourself a favor and make every effort to build yourself as strong a nest egg as possible.

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