Working Americans can usually count on multiple income streams in retirement, including 401(k) and IRA plans, investment accounts, and annuities. Most career professionals heading toward retirement age can also count on Social Security as a cash stream, although it shouldn’t be the only income source in one’s golden years.
Here's Where Social Security Should Slot in Retirement, Cash Wise
As a starting point, your Social Security retirement income percentage shouldn’t be a specific number, Sadler said. Instead, it should be a mindset.“The real answer is that the right percentage isn't 35 percent or 40 percent, it's whatever percentage makes sure your guaranteed income is enough for your needs,” Sadler noted. “The math follows the lifestyle, not the other way around.”
The real number may wind up in the 30-to-50 percent retirement percentage range, but in reality, the more outside income you have for retirement, the less Social Security funds you need.
For example, retirees with large investment portfolios may find a 35 percent target range more sensible. “Those individuals can afford to lean more on their savings,” Sadler noted.
Downward on the income stable, the math changes. “For middle-income retirees, it seems that they sleep better and do better if Social Security income makes up 40 percent to 50 percent of their overall income, as this provides a buffer for two of the biggest risks in retirement, bad markets and long lives,” Sadler noted.
A Social Security Income Percentage That Should Work for Most People
In an ideal situation, Social Security covers some basic living expenses, such as property taxes and groceries, but it isn't the primary source of income. “Then personal investments and retirement accounts pay for health care costs, discretionary spending, and legacy planning,” Yehoda Tropper, CEO at Becca Life Settlements, told NTD.At most retirement levels, Tropper views the ideal SS income percentage as 35 percent. There’s a good reason for that, he said. “If someone's relying on Social Security for 40 percent or more of their income, they're vulnerable if inflation goes up drastically more than the program’s annual cost of living or if benefits are reduced in the future,” Tropper said.
There’s another way to look at the issue: at the intersection of income flow and income need.
“Rather than focusing on a particular percentage, a more useful question is: Does my ‘guaranteed income’ meet my cost-of-living expenses?” Sadler noted. “If the answer is yes, then the plan is generally sound regardless of the actual percentage.”
Ultimately, the percentage is somewhat meaningless without context. “The right percentage is the one where, if the market fell 40 percent tomorrow, you wouldn't have to change how you live,” Sadler said.