3 Reasons You Can’t Count on Social Security Alone to Fund Your Retirement

Social Security is a crucial income source for millions of seniors. But these retirement benefits cannot be the only funds you rely on once you’ve stopped working. Nonetheless, many people mistakenly believe they can live on Social Security alone.

If you are one of the millions with little or nothing saved for retirement and you are hoping Social Security will be enough, there are some serious flaws in this strategy. Here are three big reasons you should start saving ASAP so you have enough money.

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1. Benefits aren’t big enough

The first and most obvious reason you cannot rely solely on Social Security is because the benefits are inadequate.

The average benefit in 2022 is $1,661. So unless you can live on $19,932 a year for every single cost — including healthcare, housing, food, transportation, and entertainment — you will face a huge shortfall if you get benefits close to the average.

The Social Security maximum benefit is much higher: $4,194 per month as of 2022. That might sound like plenty, but to get this maximum, you would have to be among the top 6% of earners in the country for at least 35 years and put off a benefits claim until age 70.

Most people simply aren’t going to do that. And even if they did, it still wouldn’t be enough to live on. To be on track for this benefit, you would need to earn $147,000 in 2022 and the inflation-adjusted equivalent of that amount annually. The resulting benefit would give you an annual income of $50,328, which is only just over a third of that $147,000 annual salary, so you’d take a huge pay cut even with the largest possible benefit.

The bottom line: No matter what, you will only get around 40% or less of what you were earning pre-retirement from Social Security. That’s not enough to live on without a drastic and likely unpleasant lifestyle change.

2. Benefits aren’t in your control

There’s another huge problem with trying to live solely on Social Security. You have no control over the future of this program or how much it will provide you.

Lawmakers could make changes to Social Security, such as pushing back the age when you can claim benefits or reducing the periodic increases meant to help keep pace with inflation. If either of these things happened, your benefits could end up providing you less money than you expect and could make your cash shortfall even bigger.

Why would lawmakers do this? The reason is simply. Social Security is in some financial trouble, and the program’s trust fund is expected to run dry by 2035. That would mean only around three-quarters of promised benefits could be paid out because the only money available would be the revenue the program was currently bringing in.

If lawmakers take steps to shore up Social Security, some type of benefits reduction is likely to be on the table. Benefits were reduced the last time major changes were made in 1983 when the program was amended to make it more financially solvent. And that would probably happen again.

Since you have no real control over whether you get all that’s promised or not, you don’t want to bank your entire retirement on Social Security.

3. You may not want to claim benefits upon retirement

One more reason not to rely solely on Social Security is because you might not be able to claim these benefits upon retiring, or you might not want to.

Your retirement checks can be started at age 62. If you are planning for early retirement or are forced into it, you may need money to support yourself before then. And even if you are retiring at 62, you might want to wait several more years to claim Social Security. That’s because the longer you delay these benefits (until age 70), the more your check grows each month.

If you don’t plan to claim Social Security right away or can’t do so, you won’t have these benefits as an income source for some of your retirement. You’ll need plenty of money in the bank to support you during that time.

For all these reasons, you should work aggressively to save a generous nest egg that will work in conjunction with Social Security and help make your retirement a secure one.

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