Social Security commonly ends up being an essential retirement income source for a lot of older Americans. And you may be planning to have those benefits represent a notable chunk of your retirement income, too.

But there’s one important thing you need to know about Social Security before you sign up for benefits. And it’s a number that could also influence your broad retirement planning efforts.

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Understand how much replacement income Social Security will give you

There’s a reason so many retirees wind up in a financial bind after leaving their jobs. They think they can mostly get by on Social Security when, in reality, that’s not so easy.

A big misconception about Social Security is that it will replace all or most of your pre-retirement paycheck. In reality, you’ll be lucky if those monthly benefits replace about 40% of your wages.

And the reason for the whole “lucky” part is that benefit cuts are looming for Social Security if lawmakers don’t manage to find a way to fix the program’s financial problems. If benefit cuts happen, Social Security will replace an even smaller percentage of your paycheck.

You should also know that if you’re a higher earner, you should expect less than 40% replacement income from Social Security. And the reason is that Social Security has a maximum monthly benefit it pays each year.

You may have noticed, if you earn a very large paycheck, that not all of your income is taxed for Social Security purposes. But on the flipside, your Social Security benefits will max out at a certain point (the exact number will depend on when you’re signing on, as the program’s highest possible monthly benefit changes from year to year). So you may, depending on what you earn, find that Social Security replaces only 25% of your wages, 15%, or even less.

Make sure you’re not too reliant on Social Security

Once you understand how much replacement income you’re likely to get from Social Security, you can make a couple of important decisions. First, knowing that information should help you narrow down a filing age.

You can claim Social Security as early as age 62. But you’re not entitled to your complete monthly benefit without a reduction until you reach full retirement age, which is 67 if you were born in 1960 or later. You can also delay Social Security for boosted benefits up until age 70.

If you find that you need a larger percentage of replacement income from Social Security than what you’d get at full retirement age, you can exercise the option to delay your claim. For each year you do until your 70th birthday, your benefits grow 8%.

You can also establish a savings plan and goal knowing how much replacement income you’re in line for from Social Security. If you expect 40%, but you also figure on needing a 70% replacement income rate for a comfortable retirement, then you can run some numbers (on your own or with the help of a financial advisor) to see how large a nest egg you should be aiming for.

It’s important to know what to expect from Social Security ahead of retirement so you can plan accordingly. But even in a best-case scenario, you should not expect your benefits to take the place of more than 40% of the paycheck you’re used to.

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