Who pays me when I stop working? (Lesson 2)

Social Security, your savings, and the gap between what comes in and what you need.

Lesson 2 · Start here · about 4 minutes · 10 pictures

This is an educational walkthrough using a fictional family. It is not financial advice, and the right answers for you depend on facts a lesson cannot know.

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1.Who pays me when I stop working?

Title slide: Who pays me when I stop working? The three places retirement money comes from, and the gap your savings have to fill. With portraits of Ray and Angie.

For forty years someone has handed you a paycheck. The day you stop working, that ends. So who pays you after that? You do. This lesson shows where the money comes from. As always: this is an educational walkthrough using a fictional family. It isn’t financial advice.

2.Three places the money comes from

Three numbered columns: 1, Social Security, a monthly check for life; 2, your savings, what you have put away and what it has earned; 3, everything else, such as a pension, part-time work or rent.

Retirement money comes from three places. Social Security. Your own savings. And everything else: a pension if you have one, or part-time work, or rent from a property. Most people have the first two. Many have nothing in the third box, and that is normal.

3.Social Security

Social Security: a check every month for the rest of your life. Three points: it rises as prices rise, you earned it by working, and its size depends on what you earned and the age you start.

Social Security is a check every month for the rest of your life. It goes up as prices go up. You earned it by working and paying into it. How big it is depends on how much you earned, and on the age you start taking it.

4.Their Social Security checks

A table of the Parkers’ Social Security checks. Ray starts at 65: $21,700 a year, $1,810 a month. Angie starts at 63: $12,700 a year, $1,060 a month. Together: $34,400 a year, $2,870 a month.

Ray and Angie plan to start their checks the year they stop working. Together that comes to about thirty-four thousand four hundred dollars a year. That is about twenty-nine hundred dollars a month.

5.What they need in the first year

$68,100 in large figures: what Ray and Angie need in their first year without a paycheck. A bar splits it into $46,800 living costs, $19,400 health care and $1,900 mortgage.

Now the other side. In their first year of retirement, Ray and Angie need about sixty-eight thousand dollars. That is their living costs, plus health insurance, which gets expensive when it no longer comes from a job. We look closely at costs in the next lesson.

6.The gap

Two bars side by side. They need $68,100; Social Security pays $34,400. The difference is labeled the gap: $33,700, paid from savings every year.

Social Security pays thirty-four thousand. They need sixty-eight. The difference, close to thirty-four thousand dollars, is called the gap. Remember that word. The gap is the whole reason you save.

7.Savings fill the gap, every year

A bar chart of what the Parkers need each year at Ray’s ages 65, 66, 67, 70 and 75, each bar split into Social Security and savings. The need falls from $68,100 to about $55,000 at 67, when Angie reaches Medicare, and the savings part never disappears.

The gap gets filled from savings. Every year Ray and Angie are retired, they take what Social Security does not cover out of what they have saved. A big gap empties the savings fast. A small gap lets them last.

8.Year by Year: one row for every year

App screenshot: the Year by Year table with the 2037 row highlighted, the year Ray is 65. In: $34,417. Out: $68,128. From savings: $33,711.

Here it is in OutlastRetirement. This page is called Year by Year. Every row is one year of Ray and Angie’s life. Find the year Ray turns 65. You can see the Social Security coming in, the costs going out, and the amount taken from savings to cover the gap.

9.Two ways to shrink a gap

A diagram with the gap in the middle. From one side, bring more in: work a little longer, a larger Social Security check, part-time work. From the other, spend less: a smaller budget, a paid-off house, lower health costs.

There are only two ways to shrink a gap. Bring more in, or spend less. Everything else in this course is one of those two moves.

10.Open the Parkers’ Year by Year

Three steps: find the first year with Social Security income, read across to see how much came out of savings, and look up your own estimate at ssa.gov. Below, the link to Ray and Angie’s Year by Year page.

Your turn. Open Ray and Angie’s Year by Year page with the link below. Find the first year with money in the Social Security column. Then look across that row and find how much came out of savings. And for your own plan: do you know what your Social Security check will be? You can look it up for free at ssa.gov. Write the number down. You will need it in lesson four. Next time: what retirement really costs. This is education, not financial advice.

Try it

Ray and Angie’s plan opens with every number already filled in. Nothing you change there is saved, and it does not touch a plan of your own.

Open Ray and Angie’s Year by Year