This number may surprise you.
Think tank proposes capping Social Security benefits at $100,000
A Washington think tank has proposed capping annual Social Security benefits for married couples at $100,000 as a way to reduce a looming deficit in retirement trust funds.
Many retirees end up living solely on Social Security. For some, it’s not intentional. That means there is no way to save money in a meaningful way. But for others, it can lead to misunderstandings.
One of the biggest misconceptions about Social Security that you often hear is that these monthly benefits are enough to replace your entire pre-retirement paycheck. In reality, you probably won’t get close. And if you look at what the average retirement savings look like today, you’ll understand why it’s so important to save for retirement if possible.
What does today’s average Social Security check look like?
Social Security pays different types of benefits. However, today’s average retirement benefit is approximately $2,076.41.
If you do the math, you’ll find that it equates to about $25,000 a year. You will also find that the typical Social Security benefit is not enough to live on.
Of course, there are steps you can take to receive larger Social Security benefits in retirement. First, the more you earn (up to a certain point), the more money you may receive from Social Security. Therefore, it helps to improve your skills to earn higher wages.
You should also know that your Social Security benefits are calculated based on your 35 most profitable years of income. So if you commit to working for at least 35 years, that’s another way to potentially get more money in retirement.
Finally, once you reach full retirement age (age 67 if you were born after 1960), you are eligible to receive Social Security benefits without reduction. However, each time you delay filing a claim, your benefits will permanently increase by 8% until you reach age 70.
Don’t plan to retire on Social Security alone, even if your benefits are larger than average.
Once you are able to claim benefits, you could end up receiving much more than $2,076.41 from Social Security. However, that doesn’t mean it’s a good idea to rely solely on Social Security when you retire.
First, people who qualify for more benefits tend to be higher income earners. Therefore, retiring with only Social Security benefits could mean having to scale back your lifestyle significantly. And even if you wanted to, without any income other than these benefits, you could end up at risk of financial hardship.
This isn’t to say you need a $2.5 million nest egg to retire comfortably. But what we aim for is some savings. A small monthly contribution to an IRA or 401(k) can have a big impact over time. And in the end, it can be a great supplement to the monthly Social Security checks you’ll eventually receive.
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