3. Social Security will be enough
Social Security is a key component of the retirement savings puzzle for most Americans. But it’s not wise to count on it as your sole source of income in your old age. The average retiree receives $1,363 every month from Social Security. That’s enough money to keep seniors out of poverty, but it doesn’t exactly afford a luxurious retirement lifestyle. To meet expenses beyond basics like shelter, food, and clothing, you’re going to need additional funds.
4. You can’t count on Social Security
The flip side to the myth that Social Security will provide enough to live on in retirement is the idea that the program is on the verge of going belly up. Doomsayers claim Social Security is about to run out of money and younger workers will never get benefits. While it’s true that Social Security faces some big financial challenges, the government would still be able to pay out 77% of projected benefits even once the program’s reserves run dry. Younger workers may not get quite as much as they were promised from Social Security, but they will probably get something. Older workers are unlikely to see their benefits slashed.
5. You’ll need $1 million to retire
Retiring as a millionaire sounds great, but the truth is that $1 million doesn’t go as far as it used to. And by the time you eventually retire, it will stretch even less. Yet millions of Americans are using $1 million as their retirement savings goal for no better reason than it’s a nice, round, seven-figure number. The problem with the $1 million number is that it ignores your actual financial reality.
Rather than focusing on an arbitrary figure, you need to estimate how much you’ll actually spend in retirement. There are a lot of ways to do such a calculation, but one of easiest is the rule of 25. The math is simple: Just multiply your current spending by 25 to get an idea of the nest egg you’ll need in retirement. If you can live on $40,000 a year or less, $1 million for retirement may be enough. If you spend $70,000 a year, $1.75 million may be a better target. The calculation isn’t foolproof – it doesn’t include money you’d get from Social Security, for one – but it’s a better estimate than a number you picked at random.