Recently I got my Social Security annual statement. While paying close attention to this at 30 may not be crucial, at some point it does become crucial for financial planning. I don’t see myself wanting to retire but anyone’s plans can change for any number of reasons.

You of course know that Social Security is not intended to cover all expenses but it can go pretty far for people who live below their means, if not now then maybe they can meaningfully scale down their spending in the future.

The median income is around $54,000. Someone born in 1970 who continues to make $54,000 (in today’s dollars) will get $1606/month at age 67 (again, in today’s dollars). The single earner couple making $54,000 is likely living on around $42,000 (assumes 10% saved to a 401k and that any kids are grown and moved out) or $3500/month.

In addition to the primary earner having a full retirement amount (FRA) of $1606, there would be a spousal benefit of $803 (assuming the spouse waits until 67) for an obvious total of $2409 which makes the gap that would need to come out of savings at $1100. Assuming the 4% rule, these people would need savings of $330,000 (remember, we assumed 10% put into a 401k along the way).

Having exactly $330,000 wouldn’t leave much of a buffer for big emergencies or the regular but unbudgetable items that seem to come every month like large vet bills, tires or needing both toothbrush heads and razor blades in the same month.

Creating a smaller fixed spending profile obviously makes every aspect of this equation easier. If $3500 is realistic and they can reduce that number by just $500 then the gap at $600 per month only necessitates a portfolio of $180,000. In reality the original $330,000 would allow them to handle the unbudgetable with much less stress.

Anyone can plug in their own numbers to assess their own situation, because the numbers are accessible. The Social Security office wants people to know their numbers. This can be simple spreadsheet work if you don’t want to hire an advisor.

Let’s quickly debunk needing 70% of your income in retirement or any other percentage you might read. If you time retirement to having no mortgage plus the fact that you’re no longer saving for retirement and hopefully paying a whole lot less for health insurance (Medicare) but medical expenses will probably go up.

Another point I would reiterate from past posts is to realize that whatever number you end up with as your investment account, you will figure a way to make due with it because you will have to. The context here is believing your number to be $800,000 and retiring with $600,000. That is not ideal, something might have to give but it is not disastrous as opposed to ending up with only 10% of what you believe your number to be.

On what I think is a related note, I have had encounters with a couple of acquaintances who are each close to or about the age where people are interested in retiring. Long story short and preserving their respective anonymity they each are having their hand forced by debt situations. While I do not know all the particulars, in one instance they cited a major home repair issue (think roof or foundation type of major).

This is of course one of those unbudgetable expenses mentioned above, a big one. This is exactly the reason to focus in these articles on over saving and under spending. You’re not really over saving because arguably there will be something expensive and unexpected almost every month.

Back to the example above of a $330,000 nest egg and a budget gap of $600, they aren’t over saved. Depending on their luck with one-off expenses they could actually be short but realistically are in a good spot.

I write about this sort of thing often because I find it interesting on several levels including the extent to which most of this is within peoples control. While there are exceptions to this of course, most of us can choose to live below our means (many do not), not rely on credit cards to make ends meet, save money and then figure out how to derive some sort of modest income when we “retire.” Despite all the gloom we read about savings rates, average balances and the like I find it very encouraging that individuals can proactively create their own solution.