Home Retirement Retiring on Social Security Alone in 2024? Here’s What That Might Look Like.

Retiring on Social Security Alone in 2024? Here’s What That Might Look Like.

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One of the biggest misconceptions about Social Security is that those benefits are designed to replace workers’ pre-retirement earnings in full. In reality, if you earn a typical wage, Social Security will replace about 40% of it, assuming benefits aren’t cut in the future due to the program’s projected revenue shortfall.

As such, it’s not a good idea to plan to retire on Social Security alone. Rather, it’s important to make an effort to build up a nest egg so you have income to supplement those benefits.

Not convinced? When you see what Social Security pays the average senior in 2024 and what the average older American spends annually, you might think differently.

Image source: Getty Images.

Social Security may not pay as much as you think

In 2024, Social Security benefits are rising 3.2%, thanks to this year’s cost-of-living adjustment. That brings the average monthly Social Security benefit to $1,907, which is an annual income of $22,884.

At first glance, it’s pretty clear that number’s not particularly large. But digging deeper into older Americans’ finances will discover that retiring on Social Security alone may not be as feasible as expected.

A 2023 Motley Fool research study found that the average income for U.S. adults aged 65 and older is $75,254. The median income for people in that age group, on the other hand, is $47,620.

When we have this sort of discrepancy, it’s fair to assume that $47,620 is more indicative of the typical older American’s annual income. The reason the average income is so much higher is that a small percentage of wealthy seniors are likely skewing it upward.

Still, $47,620 is a far cry from $22,884. This tells us that many older Americans are probably not retiring on just Social Security.

It’s also worth noting that in the aforementioned research study, the average American aged 65 and older had annual expenses of $48,872. That’s more than twice as much as the average annual Social Security benefit in 2024.

Also, that $48,872 was based on 2019-2020 data. Inflation has been rampant in the years since then, so it’s fair to assume that the typical older American is spending more these days on essential costs than they were a few years ago.

It’s hard to know if the average annual $48,872 in expenses among older Americans is on a per-person basis or a per-household basis. But even so, among couples where both people are receiving benefits, the average monthly Social Security payday this year is $3,033. That’s an annual benefit of $36,396, which is still considerably less money than $48,872.

You don’t want to retire on just Social Security

It’s pretty clear from these numbers that living on Social Security alone won’t make for a particularly comfortable retirement in 2024. But it’s also fair to assume that even if benefits rise through the years, living costs will rise, as well, perhaps at an even more rapid pace. Even if you’re a good 30 or 40 years away from retirement, it’s in your best interest to build savings for your senior years so you’re able to cover your future expenses without undue stress.

To that end, you may be surprised by how modest contributions to a retirement plan can yield big results. A $300 monthly investment in an IRA or 401(k) over a 40-year period could lead to a savings balance of over $932,000 when you apply an 8% average annual return. That’s a bit below the stock market’s average, making it a reasonable assumption over an investment window that’s four decades long.

Meanwhile, if you withdraw from a nest egg that size at a rate of 4% per year, which is what financial experts have long recommended, you’ll have an annual income of a little more than $37,000. That, combined with Social Security, could lead to a pretty nice retirement lifestyle. But bringing no savings into retirement at all could lead to a cash-strapped existence you really don’t want. This holds true whether you’re retiring in 2024 or many years down the line.

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