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Thanks everyone. Is it pretty common to live just off social security, or do retirees usually have other sources of income as well?
Many have Social Security and they take 3-4% of their retirement savings to live off of.
For example, let's say you get $20K a year from Social Security. With $500K in retirement savings from IRAs and/or 401(k)s, you take out 4% a year which is $20K. That's $40K a year gross. This is just an example, we don't know what your Social Security income project will be, but you can find out about that right now from the Social Security Administration website. We also don't know how much retirement savings you have either.
I'm in my 20s. I'm super clueless about retirement so just trying to learn. I don't plan on marrying at all and I expect to live in an apartment from now until 70.
I've had a few jobs since 18 but to my knowledge I've never set up or paid any portion of my income to any kind of retirement plan. I wouldn't' even know where to start. I recently left a company I'd been with for 3 years and I don't even know if I have or had a 401k with the company.
There are a few things here that are important:
Social Security is withheld from your paycheck by your employer and sent to Social Security. This is done for you automatically, but you can check on this at https://www.ssa.gov/
Retirement savings:
IRAs are investments you setup to contribute the money yourself each year. If you didn't set this up, it is likely you don't have it.
401(k)s are retirement savings offered by the employer. This would be taken out of your paycheck pre-tax and put into an investment account. In some companies, if you do nothing they take from your paycheck, for example, 3% and put it in a 401(k) with simple investments in your name.
Where you work, talk to HR about the 401(k) plan offered and sign up for it.
Talk to where you bank about an IRA if the employer doesn't have a 401(k), about you opening an account and investing in an IRA.
Very important, get this book: The Automatic Millionaire so you can learn about the importance of doing automatic contributions for your retirement through IRAs and/or 401(k).
It is very possible to contribute the max to your retirement accounts, work for decades and retire comfortably even on a modest salary. You are young, I suggest you look to purchasing real estate (a home) at home point to build equity instead of paying out rent forever.
ETA: OK the OP is in his 20s so I guess that makes this more believable.
The majority of people don't know about investing, retirement savings and Social Security. Which is why there are people who wait until they start collecting Social Security and freak-out because they expected it to be the same income as when they were working and other misconceptions.
About a third live on Social Security alone. Your SS benefits vary all over the map. Starts out by averaging (adjusted for inflation) your 35 best years. Using a complicated formula they figure your benefit. Then it gets adjusted down if you retire early, up if you retire late, up to age 70.
Those who live just on Social Security, for many people they wouldn't be happy living on just that. It's OK, if you planned on it and knew what to expect. Also, people who get just Social Security might be living with family members or friends.
The answer is completely dependent upon what you did for the first 70 years.
Provide a bit more info and you might get a relevant answer.
this^^^^^. But generally speaking, most try and save enough into a 401K that they can live off of small disbursements (~4%/yr) from it in combination with Social Security. That's the preferred path for many. If you did not plan well, you have to start to get creative. That could mean anything from working, to a reverse mortgage......
I'm in my 20s. I'm super clueless about retirement so just trying to learn. I don't plan on marrying at all and I expect to live in an apartment from now until 70.
I've had a few jobs since 18 but to my knowledge I've never set up or paid any portion of my income to any kind of retirement plan. I wouldn't' even know where to start. I recently left a company I'd been with for 3 years and I don't even know if I have or had a 401k with the company.
To each there own, but as a beginner looking for a no-frills, set-it and forget-it type retirement plan, I would do the following:
Via your employer, participate in the company 401K. Start by contributing 5% of your salary (which will get taken from your check, tax free. The goal is you won't even notice it's gone), which the goal of upping to 10% over time. Your employer will most likely match a portion, probably 3-6% of your salary I'm guessing (so you contribute 5% of salary, they contribute 5% for a total of 10%).
Put the 401K money into a "target date fund." These are funds that are intended to mature on the estimated date of your retirement. So you might pick the "2060 target retirment fund." Then completely forget about it and watch if grow. If you do nothing else, you should have well over $1M when you retire.
I'm still working at 72 and I work with another man that will turn 80 in January. I cannot speak for him; but my feeling is that neither one of us has to work. If I downsized to a smaller house and less land I would have no problems financially; I really have no problems now. But it is nice to not have problems. Work is also my 'exercise program' and I need it to give me a will to continue. I also use it for my social contacts; I prefer to see people face to face instead of on a smart phone.
As long as my health holds up I do not see myself retiring. I have had so many friends that retired and went home and did nothing and then they died. My feeling is that we need something to do to give us that will to continue.
So the really good news is you are young. The best, most powerful tool in anybody's kit is the power of compound interest. Put some money in a retirement plan now, and over the next 40+ years it will earn interest, and interest on the interest, and interest on the interest on the interest.
You have three options, all of which have risks and benefits.
1. Get a job with a pension. This probably means working for the government at this point. Some pensions are at risk, but others are solid. The pension will pay you money in addition to social security.
2. Get a job, or a series of jobs, with a 401k. This is an employer sponsored savings plan, and the money you put into it can be invested into mutual funds, which are a collection of bonds or stocks. As you are young, you want to invest in stocks. Frequently an employer will match an amount you put in, 4% is pretty common. So if you earn $25k, you put in $1,200/year, your employer also puts in $1,200/year. At the end of one year you have $2,400 (more or less) and it reduced your take home pay by less than $100/month, because 401ks contributions reduce the taxes you pay.
3. You can also put money in an IRA, which is similar to a 401k, but you do not need an employer to open one up. Any bank can help you with this.
Many people do all three.
Does that help? Feel free to ask more questions and I will see what I can do to help.
Wow. I was kind of taking a shot in the dark with that. This is very helpful. Is there also a way for me to quickly check the balance I have saved up in my 401k? I don’t like the idea of not being able to monitor it.
I am one of those that didn't save for retirement as I should have.
What I did, and I am fortunate that I was physically able, I put off collecting benefits until age 70.
Let's assume your FRA benefit is $1,400.
If you wait to collect at age 70 you will receive 32% or $448 more every month bringing your benefit to $1,848. That is tax free money if you don't have a lot of other income.
What is that $448 equivalent to? How much would you have to have in savings to withdraw $448 a month for the rest of your life? To be somewhat save let's say you will live to age 90 which is very possible.
$448*12*20=$107,520.00. That is a lot of dollars. By working and not drawing benefits it is exactly as if you saved nearly $27,000 every year for every year between 66 and 70.
Depending on where you live that $448 might pay all your utilities or all your food if you shop right.
Very nice. Is it always best to wait the latest to start collecting social security?
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