I’m Not Counting on Social Security -- and Neither Should You

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Millions of seniors today depend on Social Security to pay the bills in retirement. In fact, 21% of married seniors and 44% of unmarried seniors rely on those benefits to provide 90% or more of their income.

I, on the other hand, have essentially written off Social Security as a key source of retirement income. And it's not because the program is going broke (it isn't); it's because those benefits won't give me the lifestyle I want, and there's a chance they'll be whittled down by the time I retire. That's hardly an encouraging combination.

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Don't believe this myth

One of the biggest retirement myths is that seniors can live on Social Security alone. They can't -- at least not comfortably. The average beneficiary in 2019 will collect $17,532 a year once the upcoming cost-of-living adjustment is applied.

Let that sink in for a minute.

That's only about $5,000 above the poverty line for a one-person household. What that means is that if you're a senior today, the average Social Security benefit can probably cover your housing (if it's super cheap), basic transportation, healthcare (if you're lucky enough to not have too many issues), heat, water, electricity, and food. It won't be enough to buy things like a nice cable plan, museum memberships, and other forms of entertainment you'll crave when you're retired.

And that's just the outlook for today's seniors. Since Social Security has been doing such a bad job of keeping pace with inflation, retirees are increasingly losing their buying power year after year. Therefore, it's hard to estimate what sort of expenses those benefits will cover 10, 20, or 30 years down the line.

Now let's throw one more complication into the mix. Come 2034, Social Security is expected to deplete its trust funds. Once that happens, the program won't have enough in incoming tax revenue to pay all its scheduled benefits (or so report the Social Security Trustees). Therefore, in about a decade and a half's time, recipients might see their benefits slashed by as much as 21%.

Incidentally, those benefits were meant to replace only 40% of the average earner's pre-retirement income in the first place. But most seniors need roughly double that amount to live comfortably. And if you're a higher earner, they'll replace an even smaller percentage of your income -- whether or not that 21% cut happens.

That's why I'm not incorporating Social Security into my retirement savings plan. Sure, there's a good chance those benefits will still be around by the time I'm ready to claim them, but rather than count on that, I'm taking matters into my own hands.

Independent savings: The ticket to financial freedom in retirement

If you really want to live out the retirement of your dreams, do yourself a favor: Save aggressively, and don't count on Social Security to do much for you.

If you work for a company that sponsors a 401(k) plan, you'll be able to contribute up to $19,000 a year as of 2019 if you're under 50, or $25,000 a year if you're 50 or older. This means that if you're 30 and start maxing out at 2019's limits (which have the potential to increase over time), you'll have $3.23 million by age 67 if your investments generate an average annual 7% return during that time (which is a couple of percentage points below the stock market's historical performance).

Even if you don't have access to a 401(k), you can still save a nice sum in an IRA. Next year's limits are $6,000 for workers under 50 and $7,000 for those 50 and older. Max out between ages 30 and 67 at those levels, and earn a 7% average annual return, and you'll be sitting on $993,000 in time for retirement.

If you're self-employed, you're by no means locked out of the retirement savings game. You can open a solo 401(k) and sock away up to $56,000 annually as of 2019 if you're under 50 or $62,000 if you're 50 or older. Another option is the SIMPLE IRA, which, come next year, will have an annual limit of $13,000 for workers under 50 and $16,000 for those 50 or over. Finally, there's the SEP IRA, which, as of 2019, will let you contribute up to $56,000 (though if you're self-employed, that figure will be a function of your net business income -- specifically, 25% of whatever that number happens to be).

Right now, I'm doing my best to max out a SEP (that doesn't mean I contribute $56,000 a year; it means I contribute the maximum allowed based on my earnings). My husband, meanwhile, maxes out his 401(k). We keep our fixed expenses low so we're able to do this. At one point, we thought about moving to a larger home but scrapped that idea when we realized it would potentially cost us a good $20,000 more a year. Neither of us drives a fancy car, and much of our household furniture was handed down from older family members. We enjoy different cuisines, so we do spend some money on restaurants and takeout, but it's probably in line with what the average household spends.

When unplanned expenses creep up, like home or vehicle repairs, we cut back on discretionary spending to accommodate. And we always pay ourselves first -- meaning we set money aside for retirement before spending it on anything else.

We do all of this because my goal is to get to retirement without having to give a hoot about Social Security and how much my benefits entail. If they end up being respectable, ideally it'll give us some more to spend on travel or leisure. But I refuse to have those benefits determine whether we can keep the lights on or not.

As long as we continue to have a workforce, Social Security won't go bankrupt, so there's no need to worry about those benefits going away completely. But if you want to save yourself a world of financial stress between now and whenever it is you retire, stop banking on Social Security and ramp up your savings game instead. Your future self will thank you for it.

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