Jim Cramer Warns Against This Common Social Security Mistake

There are millions of older Americans today who collect monthly benefits from Social Security. And not surprisingly, there are many retirees today who struggle financially.

That’s a situation you can potentially avoid — especially if you heed the advice Jim Cramer has to offer on Social Security.

Cramer warns of key Social Security mistake

In an Instagram post, Cramer was quoted as saying your confidence “might be misplaced” if you plan on relying on Social Security to fund your retirement. Here’s what he means.

Many people expect Social Security to replace their wages in full once they retire. But you should know that if you earn an average paycheck, you can expect your Social Security benefits to replace about 40% of your pre-retirement wages. And if you’re a higher earner, chances are Social Security will replace an even smaller percentage of your income.

Now let’s talk about how much income retirees tend to need. There’s no hard and fast rule, and everyone’s different. But generally, seniors are advised to have enough income to replace about 70% to 80% of their former paychecks.

So let’s say you’re used to living on $100,000 a year. Social Security might replace $40,000 of that. But you may need at least $70,000 to cover your bills without stress.

You could potentially boost your monthly Social Security checks by delaying your claim until age 70. That could result in more replacement income. A better bet, however, is to work on building savings so you have other income to supplement those benefits.

Don’t forget about Social Security cuts

There’s another factor to consider when thinking about the role Social Security will play in your retirement finances. If lawmakers don’t find a way to shore up Social Security, the program may have to cut benefits in the near future.

That 40% replacement income from Social Security we just talked about? It could end up being a smaller percentage if benefit cuts happen.

That’s all the more reason to do your best to save well for retirement. And if you’re already nearing retirement without savings, have another plan.

That plan could be to work part-time so you’re able to keep earning money. It could be to monetize your home by renting out a basement or garage for ongoing income.

The key, though, is to make sure you have some income coming your way outside of Social Security. Otherwise, you might end up with a serious financial crunch on your hands once retirement rolls around.

Of course, it’s not a given that you’ll need 70% of your former paycheck or more to live comfortably in retirement. It may be that you’re planning to downsize, relocate to a part of the country that’s far less expensive, or generally live very frugally.

But even so, it may not be realistic to assume you can live on 40% of your former pay (or potentially less, if Social Security cuts happen). So it’s important to have other income available to you. It’s just as important to understand how much income Social Security will provide so you’re able to plan and budget appropriately.