For the average employee, Social Security benefits provided by the federal government at retirement age replace 40 percent of that person’s pre-retirement income. This amount varies slightly depending on income; for poorer Americans the percentage tends to be higher, while for wealthier Americans it tends to be lower. However, the 40 percent average is the norm for the middle class, as adopted by the Social Security Administration. on the agency’s website.
For some Americans, that amount alone is enough to live on. For the most part, however, this is not the case. While a person’s income will drop dramatically after retirement, their expenses generally won’t. For Americans who have saved over the course of their careers, this is less of a problem, as retirement savings can fill the shortfall. There are several legal ways to save effectively for retirement, primarily through 401 (k) and Roth Individual Retirement Account (IRA) plans, which can build wealth tax-free over a person’s working years. if she starts saving early.
For the nearly two-thirds of Americans are currently living paycheck to paycheck, however, contributing large sums of money to retirement savings is not an option. For these people, it may be useful to plan for a deferred retirement. The benefits of doing so are threefold. First, they give a person a few more years to accumulate savings. Second, social security payments are calculated on the basis of the best paid 35 years of a person’s career. Since most people earn more at the end of their careers than at the beginning, working more years can help push back years of low pay and raise the overall level of benefits. Finally, waiting up to seventy years to claim social security benefits increases the level of benefits by about 25 to 30 percent, improving the quality of one’s retirement.
These strategies may not be suitable for everyone. Above all, it is crucial that everyone does as much research as possible for themselves. The biggest danger with Social Security is its permanence; once benefits have been claimed, they stay at that level for the rest of a person’s life, which means the consequences of a bad decision can be catastrophic. If a person believes that they can survive only on Social Security benefits and is wrong, that person has to live with the error for the years that are left. And while there are strategies for making Social Security payments travel further, none of them can ensure a comfortable retirement.
Trevor Filseth is a current affairs and foreign affairs writer for the National interest.