Why Social Security Might Not Be Enough to Live Comfortably in Retirement

Social Security benefits are a great perk for Americans. Throughout your career, you pay Social Security taxes, and in retirement, you become eligible to begin receiving monthly payments. For some, these payments are the foundation of their retirement income. However, these benefits alone may not be enough to live comfortably in retirement for many people.

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The amount you’ll need in retirement

Unfortunately, there’s no concrete answer to how much someone will need in retirement; different lifestyles will inevitably require different amounts. However, you can apply good rules of thumb to help as a guideline for determining an approximate amount. First, it helps to begin with the 80% rule, which states you should aim to have 80% of your pre-retirement annual income in retirement to keep your current lifestyle. So, if you’re currently making $80,000, you should aim to have $64,000 annually in retirement.

Next, you can apply the 4% rule, which says you should plan to withdraw 4% of your retirement savings each year (accounting for inflation) without worrying about outliving your savings. To calculate your ideal retirement savings amount using the 4% rule, multiple 25 by your yearly income needed in retirement. If you need $64,000 annually in retirement, you would multiply that by 25 to get $1.6 million.

Why Social Security alone may not be enough

How much Social Security you receive in retirement can largely depend on the age you decide to retire. The year you were born will decide what Social Security considers your full retirement age. Here are the full retirement ages for people based on their birth year:

Birth Year
Full Retirement Age
1943 to 1954
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
1960 or after

Data source: Social Security Administration.

You can begin receiving Social Security benefits at age 62, as well as delaying your benefits until age 70, which will increase your monthly total. If you retire at your full retirement age in 2022, the maximum monthly benefit is $3,345; if you retire at 62 in 2022, the maximum benefit is $2,364; if you delay your benefits until 70, your maximum benefit increases to $4,194.

Even if you delayed your benefits until 70 and received the maximum amount, you’d only be receiving just over $50,000 each year. Following the 80% rule, this amount is only ideal for those making $62,500 annually. If you retired at 62 and received the maximum amount, you’d get just over $28,000 annually, which is only ideal for those making $35,000.

While even the maximum payouts aren’t ideal for those who may be higher earners, it’s even worse when you consider that most people won’t receive the maximum payout. As of March 2022, over 47.6 million people receive Social Security retirement benefits, and the average monthly payout is only $1,665 — just under $20,000 annually. At these figures, many people will be hard pressed to live financially comfortable in retirement relying solely on their Social Security benefits.

Your benefits will be cut short if you retire early

Suppose you decide to retire early and receive your Social Security benefits at age 62 instead of waiting until your full retirement age. In that case, you will see your monthly benefits reduced depending on how far you’re out from your full retirement age. For the first 36 months before your full retirement age, benefits are reduced by five-ninths of 1% for each month. If you retire more than 36 months before your full retirement age, any months exceeding 36 will reduce benefits by five-twelfths of 1% each month.

There are other resources to use

Luckily for a lot of people, Social Security isn’t the only source of income they may have in retirement. Many people will also have a 401(k), and for some, even a Roth IRA or traditional IRA. As you’re doing your retirement planning, it’s important that you’re aware of and utilize the different retirement accounts available to you. Having multiple streams of income in retirement is one way to ensure you’re financially comfortable and able to live the life you’ve envisioned.

The $18,984 Social Security bonus most retirees completely overlook
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