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3 Reasons Social Security Alone Isn't Enough for Retirement

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If you anticipate that Social Security alone will support you in your later years, you could find yourself facing serious financial problems.

There are three big reasons Social Security benefits themselves won’t suffice as your source of support as a retiree. 

Image source: Getty Images.

1. Average benefits are too low

The average Social Security benefit in 2021 is $1,553.68 a month. If you collect close to this average amount and rely solely on Social Security, you’ll end up with an annual income of about $18,644.16. Chances are good you won’t be able to cover necessities such as housing, medical care, food, and transportation with that amount. 

Even if your benefit is higher than average, it’s not going to be enough. Most people need to replace about 80% to 90% of their pre-retirement earnings when they leave the workforce. Social Security is meant to replace only 40%, so you’ll have a big income gap if you rely on benefits alone. 

2. You might have to retire before you should claim benefits

For most people, it’s ideal to claim Social Security benefits at age 70.

Starting checks at 70 gives you more money to live on each month and enables you to maximize this inflation-protected, guaranteed income source. It also gives you the best chance of maximizing lifetime benefits, allowing you to grow the amount of money available to your surviving spouse if you were the higher earner in your household. 

But most people have to retire before age 70 — or they want to. If you’re planning on Social Security being your only income source, you’d have to claim your benefits soon after leaving your job. If you have savings to live on, however, you can put off starting your retirement benefits and reap the increase that comes with delaying. 

3. The buying power of benefits is falling

Social Security benefits are not enough to support you even in your first year of retirement. And as you age, their buying power is likely to fall. 

That’s because benefits are only somewhat protected against inflation, since the system used to determine periodic increases to your Social Security checks isn’t ideal. Cost of living adjustments (COLAs), which are supposed to ensure benefits don’t lose value, are calculated based on how prices change for urban wage earners and clerical workers.

Because this demographic group spends differently than seniors, COLAs don’t account for the cost increases retirees actually experience. The result has been a 30% reduction in the buying power of benefits over the past few decades. This erosion in the value of benefits will likely continue. 

There are also a few other issues that could reduce the value of benefits. First, the threshold at which Social Security benefits begin to be taxed by the IRS isn’t indexed to inflation, so a growing number of seniors end up losing some of their benefits to the federal government each year. And second, unless lawmakers act, an automatic benefit cut of as much as 24% could go into effect as soon as 2035. Changes to prevent this benefit cut, such as increasing the full retirement age, could also result in a reduced benefit. 

The bottom line: There are lots of reasons Social Security cannot be your sole income source, so don’t depend on it for that. By starting to invest for your future today, you can have greater financial security as a senior.