How much money do you need to supplement your Social Security Check?

Social Security benefits are a reliable and important income source for seniors, but they absolutely cannot be your only source of funds in your later years.

Once your paychecks stop coming in, you must be able to support yourself for the rest of your life, including paying for essentials like medical bills that increase as you age. The income from Social Security simply isn’t enough to do that.

So, how much money do you need to supplement your Social Security check? There are a few ways to figure out the answer to this critical question. 

Here’s how much income you need to supplement Social Security 

To understand the income you’ll need to add to your Social Security benefits, you first need to understand what Social Security can do for you. Social Security retirement benefits replace around 40% of pre-retirement income, with higher earners getting a little less of their earnings replaced and lower earners getting a little more thanks to a progressive benefits formula. 

Obviously, taking a 60% pay cut isn’t going to happen without a drastic decline in your quality of life. The easiest way to estimate the income you’ll need to supplement Social Security is to figure out what percentage of your income you do need to replace and then plan for your savings to do that.

For example, many experts recommend that you replace a minimum of around 80% of what you were earning at your job. So, if your pre-retirement income was $100,000, and Social Security replaces about 40% of that, you’d need to replace the other 40%. So, you’d need your investments to produce about $40,000 in annual income. 

This is a simple way to estimate your investment needs, although you can also get more specific by figuring out what your likely retirement budget will be and then checking your mySocialSecurity account to see how much of that amount your benefits will cover.

As you get closer to the time you retire and have a better handle on your budget, doing the math with your actual budget can make sense — but if you’re decades away, assuming you need your investments to replace 40% of your earnings is the most straightforward way to set a retirement savings goal. 

Decide how much to save based on your income needs

Once you know how much you’ll need invested based on your income needs, this can give you insight into exactly how big your retirement account balance must be.

If you plan to follow the 4% rule, you can multiply your desired income from investments by 25 to see the nest egg balance you need. Based on our above example, if your savings needed to produce $40,000, this would mean you’d need around a $1 million nest egg. This would allow you to withdraw your $40K while maintaining a safe withdrawal rate. That money could be combined with the $40,000 or so you get from Social Security and give you $80,000 per year to live on during your later years.

 Now, you may need more or less than this amount depending on your own income needs, your plans for retirement, and whether you have a pension or other sources of passive income like real estate investments. The key is to realize Social Security alone won’t cut it and to figure out how much extra you need invested. 

A financial advisor can help with these calculations so you can set savings goals and build the nest egg you need to have the retirement you deserve.