Social Security provides a significant number of retirement benefits, the biggest being a growing income stream that you can’t outlive. So you won’t face the danger that you’ll run out of money in your golden years when you aren’t working for a living. The downside is that for all but the most frugal Americans Social Security alone simply won’t be enough to retire on comfortably.
The Social Security Administration says the program should replace about 40% of your pre-retirement income. In short, you’ll need more income to maintain your standard of living. That’s why it’s absolutely vital to set up alternative income streams for retirement — here’s how.
Social Security won’t be enough — What to do instead
Despite such warnings, many Americans are woefully underprepared for retirement. According to various studies conducted by the Social Security Administration, between 20% and 25% of Americans aged 65 or older received at least 90% of their income from Social Security. With the average Social Security retirement check in December 2023 of $1,905, retirees have to pay Medicare premiums as well as other living expenses, which have been soaring in the last few years. It’s a tough road, even if you’re able to avoid taxes on your benefit.
“Social Security was never set up to fully fund someone’s retirement — it was just set up to hedge the risk of a retirement shortfall,” says Eric Bond, president of Bond Wealth Management in Long Beach. “For many Americans, Social Security is the only guaranteed income stream they’ll have in retirement. This means it’s more crucial than ever before to have multiple streams of income in retirement.”
But a recent Bankrate survey revealed that 56% of American workers — including 69% of Generation X — have insufficient savings, meaning the need for retirement income is great. While Gen X is just on the cusp of retirement, most feel they’re nowhere near prepared.
Certainly, workers can try to maximize their Social Security benefits through smart planning.
“Many people can benefit from waiting until 70 to collect Social Security since it is the only government-guaranteed, inflation-protected income source,” says David A. Schneider, CFP, president of Schneider Wealth Strategies in the New York City area.
Schneider points to the fact that filing for benefits early can hurt your monthly payout, while waiting to claim after full retirement age can boost your benefit 8% a year. The upshot: If you claim at age 62, you can earn a check that’s just 70% of your full retirement benefit, while if you wait, you can boost your payout to about 124% of your full benefit.
But even with a maximum Social Security benefit, retirees will still need alternative income. Here are five ways to set up retirement income and four key accounts to use to do so.
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