It's absurd to think it won't help much in retirement.
This weekend, I hit the limit for idiotic journalism when it comes to writing about retirement in America.
One article, purporting to warn about the seven myths that can ruin your retirement, stated, “Social Security isn’t going to be much help [in retirement].” Another article — taking the elitist stance that $1 million isn’t enough for retirement — completely ignored the role of Social Security altogether.
Both stances are ridiculous.
Look: I know as much as the next person that Social Security’s Trust Fund is running out of money. I also think that, if you can, it’s wise to build in a margin of safety and assume that the program will pay less in the future.
That being said, saying that Social Security “isn’t going to help much,” or ignoring it altogether, is either ignorant or willfully negligent.
Putting Social Security in perspective
One of the reasons it’s hard to grasp Social Security’s importance is that we talk about it using a different language than we use for our savings. Usually, people talk about the monthly benefit they get from Social Security — but when we talk about retirement savings, we talk about the size of our nest egg.
If we use the 4% safe-withdrawal rule, we can translate all of this so that we can start to compare apples to apples. For instance, according to the Social Security Administration,, the average retired worker receives $1,328 per month. That’s the same as $15,936 per year. Using the 4% rule, that’s the same as a nest egg of almost $400,000!
Taking it a step further, the average married couple where both are receiving benefits gets $2,176 per month, or $26,112 per year. That’s the same as a whopping $653,000 nest egg.
Will that be enough to live on? For some, yes. For many others, no. But to say that this “isn’t going to help much” is absurd.
What will your Social Security “nest egg” be worth?
Fellow Fool John Maxfield has already broken down how to calculate your average monthly benefits, and you can visit the administration’s site to get an idea of your own personal situation. I’m just going to focus on translating all of this into what it means for the size of your “nest egg,” depending on how much you earn and when you choose to start claiming benefits.
Change the tab on the top to get an idea for how your “nest egg” changes based on the inflation-adjusted average of your 35 top earning years. Take a minute to look at and digest these figures.
A couple of important notes: For those who earned well over $100,000 per year, the “nest egg” hits a limit, and there’s not much growth beyond these levels. Also, these figures are for retired individuals only. If your spouse worked throughout his or her life, then your spouse will be able to claim benefits, too.
This clearly isn’t chump change: If you averaged a $50,000 salary, and you can wait until 65 to claim benefits, your Social Security payout is equal to a half-million-dollar nest egg.
While it’s true that Social Security benefits could be cut in the future, it’s estimated that those cuts will be between 22% and 29%. If you’d like to see how much your “nest egg” would be in that scenario, simply cut that amount out of your total.
In the end, the takeaway is clear: Social Security probably won’t provide everything you need in retirement, but ignoring it altogether is just plain silly.