How much Social Security will you get?

About 30% of Americans aged 55 or over have no retirement savings. Another 26% have less than $50,000 of retirement savings. Most people will depend on Social Security as their main source of retirement income. 

The average Social Security benefit is $1,317 per month. Baby boomers retirements (about 10,000 a day!) are now reducing the number of workers paying into and adding people taking out of the system. As a result, the ratio of workers to retirees dropped from 3.4 in 2008 to 2.9 by 2012, and is projected to decline as low as 2.1 workers per retiree by 2035.

By 2034, there will be no more social security "surplus" and benefits will drop by 25%. So benefits will be just over $1,000 a month, not nearly enough to live on. Congress has been long talking about doing something about it, but the only real solutions are raising the retirement age or increasing social security taxes on working people.

 Ouch.

Ouch.

If you want to an estimate of your Social Security benefits, go here: https://www.ssa.gov/benefits/retirement/estimator.html

One question I always get is: why didn't our parents talk to us about this? I suspect that there are a number of reasons. One, most parents don't like laying their money stresses on their kids (do YOU talk to YOUR kids about money?). Two, it's impolite to talk about money in American society so it becomes the silent pervasive and ubitiquous thing that everything thinks about but no one discusses. Three, previous generations have lifetime secure employment and pensions, which took the responsibility away from them.

How much will you need per month in retirement? If you need more income  than Social Security, you'll need to plan for it. 

For millenials, saving $5,000 a year and consistently earning 6% on it (after inflation) gives you $841,000 dollar nest egg after 40 year. Using the 25x rule, that produces $33,000 of retirement income yearly. Starting to save later means you save a lot less. Call it the miracle of compound interest. 

Look at the chart below. This is what compound interest does at 7% (what the stock market has earned in the last 100 years).

CompoundInterest.jpg

The key is finding investments earning 6% after inflation. But this should be the bare minimum goal you have in your financial planning.