3 Reasons You Can't Rely on Social Security Alone, and What to Do Instead

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Falling back on just those benefits could lead to a cash-strapped existence.

There are millions of older Americans today who collect a monthly benefit from Social Security. And falling back on those benefits may be your plan in the context of retirement.

Unfortunately, that plan isn’t a great one if it doesn’t involve outside savings on top of Social Security. Here’s why retiring on Social Security alone could end up being a disaster.

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1. Your benefits won’t give you enough replacement income

The average retired worker today collects about $1,915 a month in Social Security. All told, that’s about $23,000 a year. Unless you’re used to living very frugally, you might struggle to cover all of your necessary expenses on a comparable sum.

To put it another way, Social Security will only replace about 40% of your pre-retirement wages, assuming you earn an average income. But most seniors need a larger percentage of replacement income to live comfortably.

And while there are no hard and fast rules there, many retirees aim to replace 70% to 80% of their former paychecks so they have enough money to not only cover essential expenses, but also, leisure. If you retire on only Social Security, you won’t get close.

2. Benefits may be in line for cuts

Social Security may replace 40% of your pre-retirement income now. But that could change over time if benefits end up being cut.

Unfortunately, that’s a distinct possibility. In the coming years, Social Security expects to owe more in benefits than it collects in revenue. The program can take money from its trust funds to keep up with benefits for a little more than a decade, as per recent estimates. But once Social Security’s trust funds run out of money, the program may need to slash benefits universally. That would make retiring on Social Security alone even harder.

3. Cost-of-living adjustments don’t do a great job of keeping pace with inflation

Social Security benefits are eligible for an annual cost-of-living adjustment, or COLA, the purpose of which is to help recipients maintain buying power as inflation drives living costs up. Remember, inflation is a natural thing. The rampant inflation we’ve experience in recent years is less common, but it’s long been the case that living costs have risen gradually over time.

However, Social Security COLAs have historically done a poor job at helping seniors keep up with rising costs, even during periods of more moderate inflation. In fact, the nonpartisan Senior Citizens League reports that as of 2023, Social Security recipients had lost 36% of their buying power since 2000. If you rely on Social Security alone, even if you’re able to get by initially, you might struggle as soon as inflation starts to take hold.

Don’t just retire on Social Security

Saving money for retirement is hard — especially these days with living costs so elevated. But if you don’t manage to at least bring a small nest egg with you into retirement, you may be in for a world of struggle down the line.

The good news is that if you invest your retirement savings in stocks, you can grow your money nicely over time. That lessens the amount of money you have to contribute to a 401(k) or IRA each month.

In fact, if your portfolio delivers an average annual 8% return, which is a bit below the stock market’s average, and you sock away $300 a month for 30 years, you could end up with about $408,000. A nest egg like that, coupled with Social Security, could provide you with the replacement income you need to live comfortably and give you more protection from COLAs that don’t get the job done.