The Social Security Reality Check All Future Retirees Need

If your plan is to retire largely on Social Security, you're no doubt in good company. Many seniors today get the bulk of their retirement income from Social Security, and plenty of people will no doubt expect to go that route in the future.

But banking your retirement on Social Security is a move that could backfire for a couple of reasons. And it's important that you become aware of them now — before it's too late.

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Social Security might fail you

You might assume that once you retire, you'll be able to manage your bills on Social Security alone. But you should know that the average senior today collects $1,657 a month in benefits. All told, that's an annual income of about $20,000 a year.

Technically, that's a few notches above the poverty line if you're single. But that doesn't mean an annual income in the ballpark of $20,000 will make for a comfortable retirement.

You also may not end up getting $20,000 a year from Social Security. For one thing, if you're forced to retire earlier than planned, you may have to claim your benefits ahead of full retirement age to access money to live on.

The earliest age you can sign up for Social Security is 62, but you may not be eligible for your full monthly benefit for another five years. The result? You could be looking at a 30% reduction to your Social Security income by signing up as early as possible.

Furthermore, Social Security might universally have to cut benefits if lawmakers don't find a way to pump more cash into the program. Social Security's primary funding source is payroll taxes — the ones many of us groan about paying. But in the coming years, as baby boomers exit the workforce in droves, that revenue stream is apt to shrink, leaving Social Security with a deficit on its hands where reduced benefits may be the only solution.

Don't risk your retirement

It's perfectly fair to assume that you'll get some income from Social Security once you leave the workforce. But it's not a good idea to assume that your benefits will be enough to sustain you during retirement. Even if widespread benefit cuts don't occur, there's a good chance you'll struggle if Social Security is your sole income source.

That's why it's important to save for retirement while you're working. And if that milestone is far enough away, you don't have to part with a ton of money each month to build up a solid nest egg.

Socking away $250 a month in an IRA or 401(k) plan over 30 years will leave you with $340,000 if your investments in your retirement plan end up generating an average annual 8% return, which is a few percentage points below the stock market's average. Increase your savings rate to $350 a month, and you'll be sitting on $476,000, assuming that same return and investment window.

Social Security may be a lifeline for many seniors today, but it shouldn't take the place of personal savings. The sooner you recognize that, the sooner you can take steps to avoid a world of financial hardship later in life.

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