Ask the Classy Frugalist: How Much Can I Expect to Receive from Social Security?

A few weeks ago a friend and I were discussing how much he was saving for retirement and he asked: “How much do you think I can realistically expect to receive from Social Security?” I have to admit: As someone for whom retirement is definitely in the distant future, this is a question I’ve often wondered about as well.

Because I lead pre-retirement seminars as part of my full-time job, I know more about Social Security than most people my age. But I also know talking about Social Security with people in their 50s, 60s, and 70s is entirely different than talking about it with people my own age. That’s because this system may need major reforms as we head into the future. These changes may not affect those close to retirement, but they may have an impact for those of us who are early in our careers.

Interestingly enough, as I looked for information about the future of Social Security, some of the most insightful data I read was from the Social Security Administration itself. It is continually examining the solvency of the Social Security Trust Fund. This fund includes both the Old-Age and Survivors Insurance (OASI) Trust Fund — which is likely what you think of when you hear “Social Security” — and the Disability Insurance (DI) Trust Fund — monies set aside for disabled workers and their families.

According to this year’s trustee report, in 2018 Social Security’s total cost is projected to exceed its total income (including interest) for the first time since 1982. The trustees project that the combined trust funds will be depleted in 2034. However, it’s important to note that this projection refers to the reserves of the fund. Just because the trust funds are depleted doesn’t mean no benefits will be paid out. Rather, it means the benefit obligations (disability and Social Security payments) will exceed the amount that’s being brought in through taxes. In fact, a 2010 study found that trustees project program costs to rise enough by 2035 that taxes will pay for only 75 percent of scheduled benefits. Even if there is no reform, that does not necessarily mean benefits will end, but they will likely be reduced.

Ok, ok … I’ll stop nerding out about Social Security. But in case you’re wondering what all of this means for you and your retirement, here are a few steps to take:

1.     Get your side of the retirement equation right: Before you start worrying about what will or will not be there for you in terms of Social Security, make sure you’re doing what you can to prepare for retirement. Fidelity suggests that between you and your employer, you should contribute at least 15% of your income to your retirement account. Of course, that’s just a guideline. Everyone’s retirement equation is a little different depending on their retirement age, longevity, and lifestyle.

Tip: Thinking about increasing your retirement account contribution? Check out this Fidelity tool to see how a small change can make a big difference.

2.     Meet your goal with Social Security in mind: Industry standard is that most people need about 85% of their current income to live on in retirement. As you begin fleshing out what retirement will look like for you, you’ll want to get more specific about how much you will need to fund your picture of retirement. But for now, this is a good goal to start with.

Tip: Use a retirement tool to see if you’re on track. Chances are your retirement account provider has one on their website. I also like this tool from Fidelity — it’s just six steps long. Before you use any tool, make sure you know much money you have saved (not just in your current plan, but in IRAs and former employer plans) and how much you and your employer are currently saving each month.

3.     Meet your goal without Social Security in mind: Once you’re on track for your retirement goal with Social Security in the mix, see if you can work toward making your goal possible without it. While using a retirement planning tool a few years ago, I was shocked by how much of my retirement was dependent on Social Security. I asked a financial planner who is around my age about this and she told me that she and her spouse are currently planning to fund their retirement without counting on that benefit. Anything they eventually get from Social Security will just be a bonus.

Tip: Many retirement planning tools give you the option to toggle off Social Security. Struggling to find a tool that will allow you to do this? Check out this NerdWallet Calculator. Of course, anything can happen with Social Security over the next 20 or 30 years, but based on current projections it doesn’t look like Social Security will go away entirely. It’s more likely it will just be a reduced benefit. Therefore, you may not need to completely replace Social Security’s contribution, but you may want to plan on the benefit being less than what your calculator is accounting for.

At the end of the day, we can’t control what our Social Security benefit amount will be when we retire. But we can work slowly and steadily toward our retirement goals. I encourage you not to get so hung up on what benefits will be available to you tomorrow that you forget to start saving today.

Do you have a question for the Classy Frugalist? I’d love to hear from you! Send your question to me using my Contact page. Put “Ask the Classy Frugalist” in the subject line and your question in the message box.