Social Security is one of the few guarantees you get in retirement, which can make it extremely valuable for many retirees, especially to those who failed to save as much as they wanted to when they were younger. But many people worry about the program's longevity and how much of their expenses it will cover in retirement, and those concerns aren't always unfounded.
Nearly 3-in-4 Americans say they fear Social Security won't be enough to get by on in retirement, according to a recent AARP survey. For many retirees, it probably won't be. Unfortunately, most people miss the point that Social Security was never designed to cover all of your retirement expenses. It was only ever intended to supplement about 40% of your personal savings.
Here's a closer look at how much Social Security covers for the average retired worker and what to do if you're worried that it won't be enough.
How far will my Social Security checks go in retirement?
The average Social Security benefit for retired workers is about $1,516 per month, as of July 2020. That adds up to $18,192 in a year. It's a sizable amount but it doesn't come close to covering the average retiree's annual expenses.
The typical two-person household headed by an adult 65 or older spends roughly $50,800 per year, according to the Bureau of Labor Statistics. The average Social Security check will only cover about 36% of that, which isn't too far off the mark as Social Security was only ever intended to replace 40% of pre-retirement income.
Of course, many households will have two people claiming Social Security. If both individuals claim Social Security on their own work records, they could end up with substantially more. Assuming both earn the average $1,516 monthly Social Security benefit, they could cover almost 72% of the average $50,800 in household expenditures. If one person was claiming a spousal benefit, they would only get 50% of their spouse's Social Security benefit, which would be $758 per month in the example above. In that scenario, the couple would be able to cover roughly 54% of their average household expenditures. But in any case, it probably won't be enough to cover all of the average retiree's expenses.
There are ways you may be able to stretch your Social Security benefits further. Delaying the start of Social Security helps your benefits go further in retirement because every month you delay beginning your benefits (starting at age 62) increases your Social Security checks, at least until you reach the maximum benefit at 70. But this strategy requires you to shoulder the full burden of your retirement costs on your own during the early years of your retirement or continue working full-time for longer, which not something everyone can manage.
But there are also reasons to believe Social Security may not go as far in the future. The government is currently projecting the program's massive trust fund is shrinking at an alarming rate and will be depleted by 2035. That timeframe has likely shortened as it was determined before the coronavirus pandemic forced millions out of work this year and reduced the amount of Social Security taxes being paid in to fund the program. Even if the trust funds are depleted, Social Security won't disappear. It would still be able to pay out approximately 74% of benefits to retirees using the ongoing Social Security taxes workers pay in annually. But the government may have to slash benefits in the future unless Congress passes legislation to better fund the program.
How to prepare for what Social Security won't cover
The goal for most people in retirement is to have enough personal savings, Social Security benefits, and potential income from other sources to cover all of their expenses. Many people spend less in retirement to balance things out, but this isn't true of everyone, so it's ultimately up to you to estimate how much you will spend annually and how long you believe your retirement will last. This will give you an idea of how much your retirement will cost. Then, you can subtract the amount you expect from Social Security to determine how much you must save on your own.
You can create a my Social Security account to help you generate a personalized estimate of your future Social Security benefits based on your current work history. If you're worried about Social Security benefit cuts in the future, be conservative in your estimates and plan your retirement savings goals based on a smaller benefit. You can use a retirement calculator to help estimate how much you should be saving each month to reach your goal. Boost how much you're currently saving for retirement if you need to keep yourself on track. If that's not possible, you might have to alter your retirement plan.
Consider delaying retirement to give yourself more time to save. This also reduces the length, and therefore the expense, of your retirement. You could also plan to cut your expenses in retirement, but you shouldn't rely on this strategy alone because you can't be sure you'll be able to keep your expenses as low as you'd like to.
If you're already in retirement and you're worried about running out of money, try cutting expenses and consider a part-time job to bring in some extra cash every month. Such a job doesn't have to be what you did for a living before. You can pick something that's more in line with your interests now.
Living exclusively on Social Security benefits isn't feasible for most people without some severe budget tightening, especially given the concern about the program's future ability to maintain full benefits. But that doesn't mean your retirement is doomed to a life of debt and missed opportunity. With a frugal mindset and careful planning, you can save enough on your own to cover what Social Security won't.