Social Security was never intended to provide the entirety of your retirement income, for the record. Indeed, given the prospect of reduced payouts beginning roughly a decade from now, the program shouldn't even be expected to provide the bulk of your retirement income.
Nevertheless, given your likely future need in addition to the assumption that most projected Social Security benefits will still be paid, it might be nice to know what awaits. Here's a rough idea of what to expect then based on what's happening now.
The average number for 67-year-olds
There are several factors that determine your eventual Social Security retirement benefits. Your income during your working years is one of them. The more taxable income you earn, the more you get back once you retire. The number of years you work also matters.
The age at which you claim benefits is even a factor. Although your so-called "full retirement age" is between 66 and 67 (depending on when you were born), you can opt for a dramatically reduced monthly benefit as soon as you're 62. Or, if you can wait until you're 70 years of age, you'll collect measurably more than the average.
If you're just looking for a rough number to start making a mental plan with, the average monthly Social Security retirement benefit for 67-year-olds is $1,883.50 as of December 2023. That's $22,600 per year. That's not terrible. But it's certainly not a ton of money either. The Bureau of Labor Statistics reports that the typical U.S. household needs on the order of $73,000 per year just to cover normal living expenses like food, clothing, and shelter.
As a retiree, you may not have work-related expenses. On the other hand, as someone of a more advanced age, you might be dealing with above-average healthcare costs that Medicare doesn't cover. Whatever's in store for your Social Security benefits, you'll probably need more than the government-run program provides.
The million-dollar question, of course, is: How do you set yourself up for more retirement income than Social Security provides? Here are some tips.
Rely on Social Security less, and on yourself more
There are some painfully obvious answers to the question. Earning more is one of them. Saving more is another. These ideas lack the specificity needed to make them actionable, though. The more detailed a plan is, the more likely it is to achieve its goal. To this end, here are some suggestions:
1. Commit to putting at least $6,500 per year into a retirement account
Admittedly, in light of the high cost of -- well, everything -- coming up with an extra $6,500 is no easy task. But if there's any way of feasibly doing it, you should. Investing $6,500 per year in an index fund based on the S&P 500 -- with an average annual return of 10% -- should be worth on the order of $120,000 within a decade, or more than $400,000 within 20 years. That latter amount can realistically generate on the order of $1,000 worth of income each and every month.
But what if there's no way you can come up with $6,500 per year? That's OK. Save what you can when you can. Something is better than nothing. Bolster the number later when you can.
Oh, and if you're wondering where the figure came from, $6,500 is the maximum amount of money you can contribute to a personal IRA (individual retirement account) in any given year. (It's $7,500 if you're over the age of 50.) If you can come up with more than $6,500 (or $7,500) per year, though, there's certainly no reason you can't invest that excess cash outside of an IRA.
2. Wait as long as you can to claim Social Security benefits
It's a lousy prospect for someone who can't wait to start living every day on their terms, and on their schedule. But it just might make sense to postpone beginning your Social Security benefits -- even if that means you continue working at your job.
Image source: Getty Images.
As was mentioned already, while your official full retirement age (or FRA) is either 66 or 67, there's no legal requirement to begin your benefits then. If you wait until you're 70 years old to claim, your monthly Social Security check will be about 32% more than it would be if you claimed at your FRA. That would pump up the average figure of $1,883.50 to somewhere on the order of $2,500. Not bad.
Even if you can't wait until you turn 70, every month you can delay claiming helps. Delaying the initiation of your benefits may also add more years of high-earning work to your earnings history, which also raises your eventual monthly payment.
3. Buy-and-hold isn't the same as buy-and-forget
While most investors have a loose idea of what they want to accomplish and how to do so, there's always room for improvement. The key is in drawing out a detailed plan for your portfolio, and then sticking to it.
The crux of these details will be time-based. You can invest aggressively for growth when you're 10 years away from retiring, knowing you've got time to bounce back from any cyclical setbacks. Things change when your retirement is three years out, though. You should be phasing out of your riskier growth names by then, and phasing into more reliable holdings (and into safer income-producing stuff in particular).
Don't stop there, however. Although the more conservative portfolio you'll likely want in retirement should require even less-active management than while you were working, there are still reasons to tweak and optimize your positions. Maybe that blue chip stock is finally hitting a growth wall. Perhaps a dividend-paying company's payout ratio has slowly reached troubling levels.
The point is, even in retirement, the nickels and dimes add up to dollars over time. Don't suffer a subpar performance simply because you're distracted by other things.
Just make a plan (even a mediocre one) and then execute it
Maybe you're excited because you're doing better than the average (or know you will be when the time comes)? Perhaps you're frustrated because you're at the other end of that spectrum? Don't dwell on it too much either way. Again, Social Security was never meant to provide all of your retirement income, and the average payment isn't exactly show-stopping at any age. You'll want to do more above and beyond the government-run program's capacity anyway.
The top take-away for investors, therefore, is simply to make a detailed plan and then make a point of executing it. You may well end up not caring that the monthly figure of $1,883.50 is a bit lackluster. You could end up doing far better on your own, with your own savings and investment plan.
