According to a recent survey by The Motley Fool, about 40% of retired Americans say they rely “entirely” on Social Security after retirement. Many workers are also retiring and expect to be heavily dependent on Social Security. In fact, about a quarter of workers say their benefits will be their primary source of retirement income, a 2022 report from the Transamerica Center for Retirement Studies found.
But how safe is it to rely solely on Social Security? Can you comfortably retire only from your benefits? Here’s what you need to know.
How Social Security plays a role in your retirement plan
Social Security benefits were originally designed to replace about 40% of an employee’s pre-retirement income.
It may then be possible to retire on your benefits alone, if you can significantly reduce your expenses. Also, if you are married and your spouse is entitled to Social Security (either based on their own work record or through spousal benefits), that can make it easier to retire on Social Security alone.
However, in most cases, Social Security alone won’t be enough – and there are a few reasons for that.
1. Benefits lose purchasing power
Inflation has risen throughout 2022, but Social Security has been losing purchasing power for decades. According to a 2022 report by The Senior Citizens League, benefits have lost about 40% of their purchasing power since 2000.
Despite annual cost-of-living adjustments (COLAs), Social Security benefits have failed to keep up with rising inflation over the years. If this trend continues, it will become increasingly difficult to fall back on your benefits when you retire.
2. Benefit cuts may be imminent
The Social Security Administration is facing a cash shortfall and has been forced to dip into its trust funds to cover this shortfall. However, those trust funds are expected to be exhausted by 2035, after which benefits could be cut by about 20%.
This, of course, assumes that Congress won’t find a solution before then. Knowing how crucial Social Security is to millions of Americans, lawmakers are likely to come to some sort of agreement. But relying solely on your benefits in retirement can be a risky bet.
3. You may face more expenses as you get older
When you first retire, your expenses may not change drastically. You may even be able to reduce your expenses once you no longer face work-related costs.
But as you get older, you may face more expensive health care bills or other medical expenses. Medicare can help cover some of it, but it won’t cover all of it. Long-term care, for example, is generally not covered by Medicare and can cost tens of thousands of dollars per year.
While you may not be able to predict which of these expenses you will face or exactly how much they will cost, having some extra savings in the bank can help you be better prepared.
Increasing your retirement income
For most people, it will be difficult to retire on Social Security alone, especially if costs continue to rise and benefits lose more purchasing power. If you’re able, it might be wise to start strengthening your retirement fund so you have some extra savings to fall back on.
Delaying claiming benefits can also increase your monthly retirement income. The longer you wait to claim Social Security (up to age 70), the more you will receive each month. In some cases, you may be able to double your benefit amount compared to filing at age 62.
Millions of seniors depend on Social Security to make ends meet, and there’s nothing wrong with depending on your benefits to some degree. But having a good idea of how far that money will go will make it easier to plan for a more financially secure retirement.