"Making it" on Social Security?

"Employees can retire and live by themselves just on Social Security". I remember this comment made by one of a CEO/ 401k client quite clearly. My gut told me this couldn't be right. However, rather than dispute the statement in public, I did what any good 401k advisor would do - I put together a spreadsheet modeling "making it" on Social Security.

The latest stats from AARP show the estimated monthly average Social Security Benefit is $1,657. My budget soon ran into trouble as the average studio rent in the San Francisco Bay Area is $1,500. It was clear to me that the average Social Security figure would not cut it for a person living on their own.

I then took a whack at the spreadsheet using the 2022 maximum for someone at full retirement age. This amount - $3,345 - assumes the retiree had earnings or equal to Social Security's maximum taxable income for at least 35 years of their working life. For reference, the maximum taxable income in 2022 is $147,000. Is that a reasonable assumption for most Americans? Accounting for federal and state taxes, I found that my budget spreadsheet was still running on the lean side.

I have used this budget as a learning tool in my 401k talks. Employees will frequently shout out solutions (i.e., Don't live on your own. Have roommates!) as well as point out low-ball figures in my budget (i.e., haircuts cost more than $10 per month!). What I try to emphasize is the need to save. Social Security can be part of a retiree's budget but it likely will not be the full answer.

Going beyond the numbers, employees should also think about the quality of their retirement and what they want to do in retirement. Do the projected retirement income amounts take those desires into account? While the San Francisco Bay Area is expensive to live in, must a retiree be forced to move to a place that might have inclement weather? I emphasize to my employees the need to save and that if they want to move elsewhere, that is fine. It should just be done on their terms.

Bottom line: I stress the need to save. I use income projection calculators for those who are mathematically inclined. Stories and imagery are also useful in helping employees visualize retirement. Beyond that, I mention that in 32 years in this industry, no one has ever told me they have too much money in retirement. I have heard the opposite though. That is one of the toughest meetings for a retirement planner to navigate.

What do you think as a plan sponsor? Is Social Security enough for employees to retire on where you live and work? How about the view from the 401k advisor side of the fence? I welcome your comments.