Social Security’s 3.2% cost-of-living adjustment (COLA) for 2024 was the third-highest in a decade, but it hasn’t provided the relief many seniors hoped for. Average checks are just $1,917 a month as of May 2024. More than 3 in 5 seniors think the freeze in their benefits was insufficient, according to The Motley Fool’s 2024 Social Security Cost of Living Survey.
This has left many workers worried about what their retirement might look like and left many seniors scrambling to make up for the decline in purchasing power in other ways. While Social Security benefits aren’t going anywhere, it’s helpful to view them as a supplement rather than your primary source of retirement income. Here’s how you can achieve it.
Prioritize your retirement savings
Saving as much as possible during your career is the best way to reduce your reliance on Social Security. The more expenses you finance yourself, the less impact any changes to the program will have.
The first step is to calculate how much you need to save for retirement. Once you have a goal in mind, you can estimate what you need to save each month to reach your goal. A retirement calculator can come in handy here.
We hope you are able to save enough each month. Claiming a 401(k) match, if you qualify for one, can make this easier. Those who cannot put aside as much as they wish must begin where they can. Aim to grow your savings by 1% per year when your finances allow.
Explore ways to reduce your retirement costs
When saving enough for retirement isn’t possible on your own, it’s worth exploring strategies that can help you reduce your retirement costs. For example, you can delay retirement by a few years. This will reduce your retirement savings goal by tens or possibly hundreds of thousands of dollars. It will also give you extra time to save and allow your investments to grow longer, so they will be worth more.
You may also consider working in retirement. This can be traditional part-time employment to supplement your retirement savings and socialize with others. Or it could be a hobby, like a craft, that you decide to earn money in your spare time. No need to pay all your bills. Even if it only covers 10% of your monthly expenses, that’s 10% less you have to save yourself.
Social Security will still be there
It’s understandable if you’re wary of relying on Social Security in retirement, but it will still be there even if you have decades to enter the workforce. The program was designed to cover about 40% of pre-retirement income for average earners. However, there is a real threat of benefit cuts.
To be on the safe side, you may want to plan to cover 70% to 80% of your retirement expenses yourself, with Social Security making up the rest. If your Social Security checks end up taking longer than you anticipated, then you’ll have extra money to enjoy in retirement. But if not, you’ll be glad you budgeted for a smaller benefit.
It can be difficult to know if you’re setting the right savings goals, especially if retirement is far away. But your retirement plan was never meant to be set in stone. Everyone has to make adjustments over time. All you can do is make the best decisions with the information you have today. Then, as time goes by and you get a better idea of what Social Security will look like, you can change your plans as needed.
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The average monthly Social Security payment in 2024 is just $1,917. Here’s how to prepare for a retirement that doesn’t depend on Social Security was originally published by The Motley Fool
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