Can You Retire on Social Security Alone?

Social Security is a form of guaranteed income in retirement for those who’ve worked and paid Social Security taxes for at least 10 years. While it can provide a significant portion of your retirement income, whether it’s enough to fund your retirement depends on various factors such as your lifestyle and benefit amount.

If your expenses are low and you have a sufficient Social Security benefit, it might provide all the income you need. However, there are several considerations:

• Your retirement lifestyle: Will Social Security provide enough to maintain your lifestyle when you’re no longer working? If your dream retirement includes luxury travel or expensive hobbies, you’ll likely need more.
• Your age: The longer you delay your Social Security benefit, the more you’ll get. Those who retire early may also have higher health care costs in retirement.
• Your benefit amount: Your earnings and how long you worked both affect how much you’ll receive in Social Security benefits.

How Much Social Security Will You Get in Retirement?

The amount you’ll receive in Social Security benefits can vary based on several factors:

• The age you begin taking your benefits: You’ll receive a reduced amount if you start collecting Social Security before your full retirement age. However, continuing to wait beyond your full retirement age increases your benefit amount.
• Whether you’re a government worker with a pension: The Social Security Administration may use a different formula to calculate your benefit amount if you are eligible for a retirement or disability pension for which you didn’t pay Social Security taxes.

How to Save for Retirement

While Social Security can be a significant source of retirement income, it’s important to build your own nest egg. Here are some primary ways to save for retirement:

Contribute to a 401(k)

A 401(k) is an employer-sponsored retirement account with tax advantages. The money you put in during your working years is paid out as income during your retirement. Your employer might also match some or all of your contributions. In 2023, you can contribute up to $22,500 to a 401(k) account, with an additional $7,500 as a catch-up contribution if you’re 50 or older.

Kick Into an Individual Retirement Account (IRA)

An IRA is a retirement account you can open and fund yourself. You can contribute up to $6,500 across all your IRAs in 2023, with an extra $1,000 for those 50 and older. There are two main kinds of IRAs:

• Traditional IRA: Contributions may be tax-deductible, and you won’t pay taxes until you begin taking distributions in retirement.
• Roth IRA: Funded with after-tax dollars, meaning you won’t be taxed on distributions you take in retirement. However, there are income eligibility limits.

Consider a Health Savings Account (HSA)

You can open and use an HSA during your working years. The money you put in is tax-deductible, and your earnings will grow tax-free. In 2023, you can contribute up to $3,850 for a self-only health plan and $7,750 for a family plan. Once you turn 65, you can use those funds for whatever you want, including retirement income.

Think About Permanent Life Insurance

With permanent life insurance, your loved ones will receive a death benefit after you’re gone. Your policy will also accumulate a cash value that earns interest over time, which you can draw on for retirement income. Just know that doing so may reduce your death benefit.

The Bottom Line

Social Security can be a significant source of guaranteed retirement income, but it may not be enough to fund your lifestyle. Building your own nest egg can help supplement your income when you’re no longer working. Whether you’re years away from retirement or on the home stretch, planning ahead is crucial.

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