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  • Writer's pictureHarry N. Stout

151- Do You Understand Your Most Valuable Source of Retirement Income?

Updated: Jan 15, 2021

What is your largest projected source of retirement income? For most people it is their Social Security retirement benefit. This benefit is calculated on a progressive scale and has been designed to provide a base level of income replacement for wage earners. While I know many younger adults believe this benefit will not be there for them, I believe that it is too sensitive a political issue for Congress to eliminate the benefit. I believe we will see reforms passed to reinforce the benefit particularly for low to medium earners.

The Income Replacement Percentage

Social Security has been designed to provide a base of income for all retirees to prevent poverty in old age. It provides a base of income and should not be looked at or planned for as the only source of retirement income. In fact, for most people Social Security provides only about 40% of their pre-retirement earnings. The National Academy of Social Insurance recently published the following information that demonstrates this for a 65 year old in 2020:

Total Career-Average Wages Average Social Security Benefit Replacement Percent

This information was taken from recent calculations from the Social Security Administration. If you are really interested in the calculations go to Actuarial Note Number 2020.9.

Social Security is Only an Element of Income Planning

What's really important to note on this chart is that no matter your income, benefits are not going to replace more than around 53% of your pre-retirement earnings in the best case – and will likely be much less given average wage levels. That's why you should not make Social Security your sole source of retirement income. As we have discussed on our posts and books most experts advise replacing at least 60% to 80% of your pre-retirement income so you can maintain the same quality of life in retirement. Remember in reality some seniors actually end up spending more post-retirement than they did while working as they travel or participate in activities; they now have time for.

Perform a Regular Benefit Checkup

One important thing you should do is to stay on top of the benefit you qualify for. To do this, you should set up an online Social Security account. With this account you can check your earnings history against your W-2 forms or tax returns to make sure there are no errors or gaps in your earnings record that could reduce your benefits. You can also look up estimated retirement, disability and survivor benefits and, in certain cases, request a replacement Social Security card. To set up an account, simply go to, follow the prompts and answer the questions.


You need to fully understand the Social Security Retirement benefit you have coming to you. Most people do not take the time to understand how this valuable source of partially inflation adjusted income is calculated, what they have coming to them and what they can do to maximize this asset. Take some time to estimate what benefit you will have coming to you, make sure your earnings record is correct and include this valuable income source in your future planning.


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