Iâm a 34-year-old man who just started saving for retirement last year after getting married. My husband is 39 and has been saving for some time. My question is about Social Security. Should someone in our age group expect to receive it at all? Iâm always hearing about how Social Security is going broke.Â
Weâre both somewhat behind on where we should be on retirement. If we canât rely on getting Social Security checks when weâre older, how much more should we be saving? We donât want to live on rice and beans in retirement, but we also want to have enough money to enjoy life now.
Of all the things that keep me up at night, Social Securityâs solvency isnât one of them. At 37, Iâm just a tad older than you. I expect to get benefits someday, and you and your husband should, too.
Thereâs a kernel of truth to the stories you hear about Social Security running dry. Itâs starting to pay out more than it takes in, thanks mostly to people living longer and having fewer children who eventually pay in. Widespread job losses due to the pandemic probably accelerated things a bit.
But weâre still funding Social Security with our payroll taxes. Itâs just that if Social Securityâs reserves were completely depleted, our payroll taxes would only fund about 79% of obligations through 2090. Thatâs in the event that Congress takes zero action to shore up more money, which is highly unlikely given that Social Security is the most sacred of all social programs.
My bigger worry for young-ish workers like us is that our benefits wonât go very far. Even for our parents and grandparents who currently receive benefits, Social Security by itself makes for a meager retirement. The average retiree benefit in January 2021 is just $1,543 per month, or $18,516 annually. Social Security estimates that current benefits cover about 40% of an average workerâs pre-retirement income.
Those benefits buy less and less every year. Health care costs, which eat up a huge chunk of retireesâ budgets, rise way faster than Social Security benefits.
The 2021 cost-of-living adjustment was just 1.3%. Ask any retiree whether thatâs adequate to cover their rising living costs. The younger you are, the less of your income you should expect your benefits to replace.
So while I think you should expect to receive Social Security someday, I donât think it should factor into how much you save today. Knowing nothing about your budget or spending, Iâll give you the standard recommendation: Aim to save 15% of your pre-tax income for retirement. If you get an employer 401(k) match, make sure you contribute to enough to get your companyâs full contribution. Once youâve done that, make sure you have at least three monthsâ worth of emergency savings before you invest more for retirement. That protects your retirement funds so you donât have to tap them when times are tough.
If you can comfortably save more, great. If 15% isnât doable right now, figure out whatâs manageable and work your way up. For example, you could commit to putting half of your next raise toward your retirement account.
Unfortunately, thereâs no level of savings that guarantees you wonât have a rice and beans retirement. The younger you are, the more guesswork goes into retirement planning.
My life plans, at least as told to my Roth IRA brokerage, are as follows: work until age 67, delay Social Security until 70, die at 92. If everything goes as planned, Iâll die with millions. But really all of the above is just wishful thinking on my part. The picture changes drastically if Iâm forced to retire early, take Social Security sooner and stretch my savings over more years than I expected. Or if a prolonged bear market hits right as Iâm starting to withdraw my retirement money.
All that certainly supports the argument that you should save as much as you can muster as early as possible. But too often in personal finance, we only focus on the retirement years, assuming that theyâre guaranteed. The truth is, life can be snatched from us at any moment. So I also want you to have enough room to spend so that you can enjoy life now.
That doesnât mean you get free rein to spend. But if you focus on what really matters to you, I think you can strike that balance.
Youâre 34. You donât have to figure out your entire retirement plan right now. Focus on making saving a regular habit, and you can figure out the specific pieces as retirement gets closer.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.
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