Living on Social Security alone in retirement looks like this


We often hear about the importance of saving for retirement rather than simply planning to live on Social Security alone. But the reality is that saving for retirement takes effort and sacrifice. And when life’s many expenses get in the way, it’s easy to get lost in IRA or 401(k) contributions.

If you’ve been in your career for years and haven’t put a lot of effort into retirement savings, you might be tempted to start something else. Retiring on Social Security alone can lead to a world of financial pain, and you don’t want to struggle to cover your bills later in life.

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Can I cut my salary by 60%?

If you’re an average wage earner, you can expect Social Security benefits to replace about 40% of the salary you were collecting. However, this assumes that Social Security cuts don’t skyrocket. At this point, it’s a definite possibility given the program’s financial shortcomings.

But let’s think positively and assume that no benefit cuts will happen. Still, he would lose 60% of the earnings. You might think that a pay cut like this would work, but when you actually do the math, it might feel different.

Let’s say you make $60,000 a year and $5,000 a month. Also, let’s assume that you spend all of your salary on essential expenses and leisure time.

Imagine spending only 40% of your spending today. How would you save money? Stop eating out altogether? Cancel cable and have less entertainment at home?

And will those cuts be enough? Or do you have to cut back on things like electricity and hot water, and you might give up your car because you can’t pay for it?

It’s easy to tell yourself that you’ll spend less in retirement. In fact, the only expenses you’re likely to cut as a retiree are commuting costs and possibly your mortgage. But even after deducting those two costs, retirement on Social Security alone could leave him with a huge shortfall on his hands, leaving him with only 40% of his current salary.

Increase your savings while you can

It may be possible to retire on Social Security without depending on other income. But will it be a happy retirement? Probably not.

Instead of neglecting your savings, do your best to increase your 401(k) or IRA contribution rate. It can be as little as $20 or $30 per month right now. You don’t necessarily have to overdo it to retire with a million dollar nest egg. However, retiring with no savings and being forced to live on Social Security alone can have very dire consequences after a lifetime of hard work.

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