For millions of older Americans, Social Security is the main source of retirement income. But relying on it as your only source of money could put you in a risky financial position.
A Pew Research Center report found that in 2022, Social Security was the only income for 16.4 million retirees. While the program is an important safety net, it shouldn’t be your full retirement plan. Here’s why.
1. Social Security Replaces Only Part of Your Income
Financial experts often suggest that retirees need about 70% to 80% of their pre-retirement income to live comfortably. Social Security, however, only covers about 40% of the average worker’s paycheck — and even less if you earned above-average wages.
Living on just 40% of your old income is tough, especially with healthcare costs rising every year. Unless you plan to live very frugally, it’s unlikely Social Security alone will be enough to cover all your needs.
2. Benefit Cuts Could Happen in the Future
The Social Security program is facing long-term financial challenges. According to the Social Security Trustees’ latest report, the trust funds that support the program could run out by 2034 if Congress doesn’t act.
If that happens, benefits may be cut by about 19%. While lawmakers may step in to prevent cuts, there’s no guarantee. Depending only on Social Security could leave you exposed to sudden benefit reductions.
3. COLAs Often Don’t Keep Up With Inflation
Every year, Social Security benefits are adjusted for inflation through a cost-of-living adjustment (COLA). The goal is to make sure benefits maintain their purchasing power.
But in practice, COLAs fall short because they’re calculated using the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers). This index doesn’t reflect the real spending patterns of retirees, especially when it comes to healthcare and housing, which usually rise faster than general inflation.
As a result, seniors often lose buying power over time, even when they get a COLA increase.
Why You Shouldn’t Rely Solely on Social Security
There’s nothing wrong with counting on Social Security as part of your retirement plan. But it should never be your only source of income.
Here are some ways to build extra financial security:
Contribute regularly to a 401(k) or IRA
Invest in dividend-paying stocks for ongoing income
Consider working part-time in retirement if savings are limited
Having at least one reliable source of income outside of Social Security can protect you from benefit cuts, inflation, and rising medical costs.
Social Security is a valuable program that has supported retirees for decades, but it was never meant to fully replace your paycheck. With limited income replacement, possible benefit cuts, and COLAs that don’t always keep up with inflation, relying on Social Security alone could leave you struggling.
By saving, investing, and planning ahead, you can build a stronger financial future and enjoy a more comfortable retirement.
