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Once they retire, most people need to draw on income from a variety of sources to sustain a comfortable standard of living. One of those income sources is their Social Security benefits.
Depending on your retirement savings and your desired lifestyle, your Social Security benefits could be a lifeline or merely a bonus.
“A good plan assumes you’ll need to generate most of your retirement income from your own resources, and let Social Security serve as a backup or stabilizer,” said Matthew Ferrell, a certified financial planner at MADE Financial Design. “I work with clients at both ends of the spectrum, including those who could retire comfortably without it and those for whom it’s essential.”
Key Takeaways
- No matter how much you have saved, Social Security benefits can play an important role in your retirement planning.
- Your Social Security benefits work best as part of a larger retirement plan that includes income from pensions, retirement accounts, and personal savings.
- To maximize your benefits, wait to collect them until age 70. Claiming benefits earlier may help you meet important expenses, but you’ll also receive a lower monthly benefit amount.
How Social Security Works With Other Retirement Income
Rather than being the single source of retirement income, Social Security should work with other sources of income in a retirement plan.
“For many people, [Social Security] replaces about 30% to 40% of pre-retirement earnings, so other sources are needed to fill the gap,” Ferrell says.
“It works best as part of a broader income strategy that includes retirement accounts, pensions, personal savings, and in some cases, part-time work.”
Whether you use Social Security to cover important expenses such as housing and health care or it’s just a small portion of your retirement income, your benefits play an important role in your retirement.
“For higher earners or strong savers, it might only represent a small slice of income, but it still adds stability. For others with fewer resources, it may be their most critical safety net,” Ferrell said.
When to Start Taking Your Benefits
Waiting to receive Social Security benefits can boost the amount you’ll receive every month.
“Each year you delay benefits beyond your full retirement age, you receive an 8% increase in monthly payments. That can be a powerful incentive if your budget allows,” Ferrell advised.
To maximize benefits, consider waiting until age 70 to claim your Social Security benefits. As part of that decision-making, you’ll want to think about your health and your life expectancy.
“If you expect to live well into your 80s or 90s, delaying benefits can provide a substantial long-term payoff,” Ferrell says.
“On the other hand, if you need the income sooner to meet basic expenses, claiming earlier may still make sense despite the smaller monthly benefit.”
Social Security Solvency
How long is the Social Security trust fund expected to be able to pay the benefits due to Americans who have contributed to it their entire working lives?
“Current projections suggest the trust fund may be depleted by the mid-2030s. If that happens, ongoing payroll taxes would still cover about 75%-80% of benefits,” Ferrell said.“Lawmakers have several policy tools to address this, including raising the payroll tax cap or adjusting the full retirement age.”
The expectation is that Congress will act to improve Social Security’s future financial status. Yet, people nearing retirement age may want to focus on building up their other sources of income and budgeting more carefully.
They may also want to consider taking on a part-time job once they’re in retirement.
Those with years to go before retiring should also make it a goal to increase the value of their retirement nest egg with disciplined saving. This is always a smart strategy—no matter the status of Social Security.
“It’s wise to plan conservatively and avoid relying too heavily on Social Security alone, especially for those who are still a decade or more away from retirement,” Ferrell said.
The Bottom Line
The part that Social Security plays in your retirement years will depend on how much other retirement income you have at that time.
If you have other resources, your monthly Social Security benefit can serve a smaller but still important role in supporting your chosen lifestyle in retirement. If you have few other resources, you may have to use your monthly Social Security benefit to pay for housing, health care, food, and more.
One way to increase your Social Security benefit is to wait to claim your benefits until you reach the age of 70. Claiming Social Security benefits sooner may help you meet your current expenses, but you’ll never receive the maximum amount available to you.
