If you haven't heard the news, the latest Social Security Trustees Report just announced that the program only has enough money in its trust funds to last another decade. After that, owed benefits will exceed its ability to pay.
While this news isn't surprising, it is still concerning. Many seniors rely upon Social Security for their sole or primary financial support, and many workers would like to be able to count on it to supplement their own savings.
But given all this uncertainty, some might wonder whether it's safer to plan for a retirement without it. Below, we'll look at what that would take and what you could expect from Social Security in the future.
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How much do you need to save to retire without Social Security?
There's no magic retirement savings number to aim for because everyone's retirement looks different. You have your own goals and hobbies that might not line up with your neighbors' or even others in your own household. And you'll have your own life expectancy and unique challenges to face. So you need a personalized plan built around how you envision your retirement.
But it's reasonable to think you could spend seven figures or more in retirement. The latest Bureau of Labor Statistics data shows that the average household headed by an adult 65 or older spent about $52,141 in 2021. And that figure likely rose in 2022 with the high inflation we faced. If you live 20 years or more in retirement, you'll easily spend $1 million. Some people might even spend closer to $2 million if they plan to travel or they experience a lot of costly health issues.
So if you hope to pay for all your retirement expenses without Social Security, you will need to save somewhere in that neighborhood to pull it off. But all that money doesn't have to come out of your own pocket. If you invest your funds, you'll wind up with earnings to supplement your personal savings.
The amount you have to set aside on your own depends on your savings target, what you invest in, and how long you have until retirement. Those who start early and make monthly contributions typically have the easiest time.
For example, those starting from scratch who hope to have a $1 million nest egg in 40 years only need to save about $311 per month if they earn an 8% average annual rate of return. But if you only have 20 years to save $1 million, you need to save about $1,759 per month with the same average annual rate of return.
For some people, the monthly savings target they need to hit in order to retire without Social Security isn't feasible. But fortunately, it's probably not necessary to save that much on their own.
Social Security isn't disappearing
Even in the worst-case scenario laid out in the Social Security Trustees Report, the program is still going to be around for you. If it continues as it has been, it will have to slash benefits by up to 23% after 2033. That would obviously be a huge blow to the seniors who count on it. But it also means the program will still have some money to pay qualifying beneficiaries.
And it's possible this benefit cut never happens. The federal government is aware of this issue, and several members of Congress have proposed solutions. Nothing's been agreed upon yet, but there's still time to come up with a way to make the program sustainable over the long term.
If you're worried about how far Social Security might go in the future, you can always plan for a reduced benefit. Use your my Social Security account to estimate the size of your monthly checks based on the current benefit formula and your work history to date. Then, plan to receive about 23% less than this so you're prepared if the government has to slash the payouts.
Use this information and your estimated life expectancy to figure out how much you think you'll get from the program during your lifetime. The easiest way to do this is to multiply your monthly benefit amount by the number of months you expect to receive checks. Then, you can subtract this from your total retirement costs to figure out how much you have to come up with on your own.
Planning for a retirement without Social Security isn't really necessary, but if it makes you feel better, you could still do that. Just know you'll have to save a lot more of your own money during your working years. But if you pull that off, you'll hopefully be able to afford a pretty comfortable retirement, and you could even have a little surplus to leave to your heirs.
