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How Much is Social Security? [The Retirement Savings Crisis Explained]

How much in monthly Social Security income will you receive?

There is a retirement crisis in American and millions are realizing, they can’t pay the bills on social security.

In this video, we’ll look at the average social security check and how to calculate your monthly benefit. I’ll then show you how to guarantee an income in retirement.

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How Much is Social Security?

Nation, social security is not enough to live on. I’ve seen it first hand with family and I don’t think most people really understand how bad it is!

According to the Social Security Administration, the average benefit is just over $1,500 a month. That’s about eighteen grand a year and let’s look at this versus average annual spending for households 65 and older. This chart shows retirement living expenses for the average household 65 and older, the data is from the Bureau of Labor Statistics, consumer expenditures survey.

So we see that just paying for a roof over your head, that’s nearly seventeen-grand right there, almost that entire social security benefit. Add on food, healthcare and all these other expenses and it becomes clear immediately that you’re going to have to cut somewhere.

Can I Live on Social Security?

So let’s look at what retirement might look like if you’re living off social security. I’ve taken the average household spending for that 65- and older group, that’s the left bar here, and then made some adjustments to get spending down to just social security.

Living on Social Security Benefits
Living on Social Security Benefits

So housing, we’re talking subsidized housing and I know all about this because it’s all my mom could afford when her cancer got so bad she had to go on disability. Her rent in a one-bedroom apartment was $450 a month with another $125 for basic utility services.

Transportation is just over seven grand for the average household but you’re not going anywhere. You can’t afford it.

Healthcare is sixty-eight hundred but you can only afford the very basic Medicare coverage and out-of-pocket so we’ll estimate that at about $375 a month.

Food is about $6,600 for the average household 65 and older but you’re eating ramen noodles and oatmeal every day so maybe you can make due on $5,000 a year…if you never go out to eat.

A lot of this other stuff is expenses from those 65- and older still working so you won’t have that. You certainly aren’t going to have these expenses for entertainment, that’s all over. You’re not going anywhere so hopefully you can make due on clothes from the Salvation Army and don’t use up the soap too fast because you can’t afford much in the way of personal care products.

The Retirement Income Crisis

And this isn’t just a problem for those living on social security but for their family as well. The big news lately has been the number of millennials still living at home but I have a feeling, very soon, we’re going to be talking about a bigger trend, retirees living with their children.

That’s why I wanted to put this series together. In partnership with AgeUp, we’ll look at the retirement crisis in America and how to make sure you or your parents don’t get stranded into that trap of living on social security.

We’ll look at exactly how much you can expect from social security in this video, how to calculate your benefit. In the next video, I’ll reveal five ways to help pay for retirement even if you’ve just started saving. In the final video of the series, we’ll look at how to use AgeUp and annuities to guarantee income in retirement for your loved ones and for yourself.

Ageup is an income annuity backed by Mass Mutual that provides supplemental income for yourself or your parents at a certain age. You contribute as little as $25 a month and get guaranteed income after you or your loved one reaches 91 years old and can even get your contributions back on an optional death benefit.

See how much income you can guarantee in retirement Get a Free Quote from AgeUp in Less than a Minute!

How Many Retirees Live on Social Security?

Nearly a third of those in the Baby Boomer generation and older have no savings at all. This chart from GoBankingRates shows savings by generation, and another 17% have less than $10,000 saved so we’re talking about nearly half of the people in this age group that will have only social security in retirement.

We’ve already looked at the average social security benefit but now let’s look at how to calculate how much you can expect in retirement.

Do I Qualify for Social Security Benefits?

Now I’m assuming that you even qualify for social security through either your work history or your spouse. That generally means working at least ten years and making about $5,000 or more each year. You see, you need 40 credits to qualify and you earn these for every $1,300 in wages you earn…but you can only earn up to four a year.

So you have to work at least ten years and make $5,280 each of those years to build up enough credits to even qualify. You can also earn credits through your spouse working if you stayed home.

How Much Will I Get from Social Security?

The math for calculating your estimated social security can be a pain but it starts with taking every year’s earnings and adjusting it for inflation. This means multiplying each year’s earnings by an inflation adjustment provided by the Social Security Administration to show what the earnings would have been in current dollars.

You can get all this information, including your wages reported each year and that adjustment factor, directly from the Social Security Administration so I don’t want you to think you HAVE to go through all this math. I just want to walk you through the basics here.

Next you take the highest 35 years of earnings, so those inflation-adjusted earnings, take the 35 largest. If you haven’t worked 35 years, then add up as many as you have. Then you’re going to find the average indexed monthly earnings, so you divide this total number by 420. You can also divide it by 35 for the number of years and then divide that by 12 to get your monthly amount but it works out the same dividing by 420.

From this average monthly number you get your primary insurance amount or the estimate for your social security benefit. Now you have to do a little math here but it’s pretty easy and we’ll go over an example.

Social Security Calculation

You get 90% of the first $895 in that average monthly number. You then get 32% of that average monthly number between $895 and $5,397 and finally you get 15% of the average monthly earnings above $5,397.

So let’s say you’ve added up your highest 35 years of earnings, indexed for inflation, and divide by 420 to find your average monthly earnings were thirty-five hundred dollars. You get 90% of the first $895 which is $805 and then 32% of the $2,605 above that first level or $833.60 for a total estimate of $1,638 a month in social security benefits.

But what if you haven’t worked those 35 years or maybe your earnings weren’t that high? What if you add up each year’s earnings, divide by 420 to get the average indexed monthly earnings and it’s only $2,000?

Then you’d get that 90% of your AIME up to the $895 and 32% of the remaining $1,100 for an estimated $1,159 a month in social security.

How to Make More Money in Retirement

And if this all wasn’t bad enough, the Social Security Administration estimates it will begin paying out more than it collects in 2022 and the fund could be entirely empty sometime around 2034.

In the past, covering these social security fund shortfalls has meant raising the age you can collect benefits but in the future it may also mean cutting those benefits.

The only way to guarantee your golden years, or those of your loved ones, aren’t tarnished is to secure other income sources.

Now we talk a lot about investing and making extra money through a side hustle here on the channel but one thing we haven’t talked about is guaranteed income through annuities.

Annuities come in all shapes and sizes so I want to cover the basics here and at the most basic, an annuity is a contract sold by an insurance company that provides a monthly income amount.

That amount can vary according to a return, what’s called a variable annuity, but the most common is a fixed annuity where you receive a guaranteed amount each month.

Annuities can also be immediate, where you buy the contract and start receiving the monthly income right away, or they can be deferred where you pay into the contract and then start receiving income at a later date.

And with the market crashing 30% as I write this, that guaranteed income from an annuity is looking even more important. You generally buy an annuity through an insurance provider and talking with the people at Haven Life, I was interested in hearing more about AgeUp.

AgeUp is an interesting twist on annuities because you can buy one on your parents for the extra income you might need to support them with a livable income. You contribute as little as $25 a month and the annuity starts paying out at anytime after they reach 91 years or older. Getting an estimate for that income payout is easy with the site’s calculator and the entire process is really quick.

You can also contribute to an annuity for yourself, so guaranteeing that income when you reach 91 or older and what I like about AgeUp is that it includes the optional death benefit. This is the option to get all your contributions refunded if you or your parent doesn’t reach that age where the annuity starts paying out.

Not only can an AgeUp annuity help provide that livable income but it allows you or your parents to rely more on their investments and not worry about running out of money in retirement.

See how much income you can guarantee in retirement Get a Free Quote from AgeUp in Less than a Minute!

Living on Social Security benefits isn’t impossible but it’s not something you want to experience. Just a little planning will tell you how much social security check you can count on and how much more you’ll need in retirement.

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