If you’re thinking about your retirement planning, it’s worth considering why a personal savings account can benefit you more than relying solely on Social Security.
For beginners, Social Security benefits are modest. According to the Center on Budget and Policy Priorities, an individual with average earnings who retires this year at age 65 will experience only a 39% replacement of past earnings via Social Security benefits. In May 2024, the average Social Security benefit for retired workers was $1,916.63.
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And although Social Security is positioned to give retirees modest financial support, your savings account offers some unique advantages that can help you meet your retirement goals. From giving you more control over your money to providing opportunities for growth and inheritance, here are six reasons why your savings account might hold more value than Social Security.
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Control and Flexibility
Having the ability to make decisions about your money when you need to is a big deal. Savings accounts provide this freedom.
“One of the primary reasons I value my savings account more than Social Security benefits is the control and flexibility it offers,” said Dennis Shirshikov, professor of finance at the City University of New York and the head of growth at Summer.
“With a personal savings account, I have the freedom to access my funds as needed and make decisions based on my financial situation and goals. Social Security benefits, on the other hand, are fixed and subject to government regulations and potential changes in policy.”
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Potential for Growth
When you think about growing your retirement savings, savings accounts are a straightforward solution.
“Savings accounts, particularly those invested in high-yield savings or other investment vehicles, have the potential for growth over time,” said Shirshikov. “While Social Security benefits are adjusted for inflation, they do not offer the same opportunities for compounding interest or investment returns.”
Inheritance for Heirs
Leaving a financial legacy for your family is often a priority. Personal savings accounts offer a straightforward way to pass on your wealth, which Social Security benefits don’t really allow.
“Another important reason for valuing my savings account more is the ability to pass on wealth to my heirs,” said Shirshikov. “Social Security benefits are generally not inheritable, and while a surviving spouse or dependent children may receive some benefits, the ability to transfer wealth is limited.”
Protection Against Policy Changes
“Social Security benefits are subject to political and economic changes, and there is always a level of uncertainty regarding the future of these benefits,” Shirshikov explained. “Concerns about potential reductions in benefits or changes in eligibility criteria make Social Security a less reliable source of income.”
If no changes are made, starting in 2033, the Social Security Administration will not be able to pay scheduled benefits in full and on time, according to a report from the Social Security Board of Trustees. It’s projected that people will still receive about 75% of their total benefit, however.
Customized Retirement Planning
Everyone’s retirement plan looks different. Personal savings accounts allow you to tailor your financial strategy to meet your specific needs, which provides a level of customization that Social Security can’t offer.
“With a personal savings account, I can tailor my retirement plan to fit my specific needs and preferences,” Shirshikov said.
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This article originally appeared on GOBankingRates.com: I’m Retirement Planning: 6 Reasons My Savings Account Is More Valuable Than Social Security
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