When you're making retirement plans, you can expect Social Security to be one of your income sources. But you can't count on it to be your only source, or even necessarily your primary one, since your benefit probably is going to be much smaller than you're anticipating.
There are four really big reasons why you can't count on a big Social Security check. Here they are.
1. You may be forced to leave work early
Your monthly Social Security checks grow larger the longer you wait to claim them, up until age 70. Many future retirees plan to wait as long as possible to get the maximum monthly income from the Social Security Administration.
Unfortunately, 62 -- the earliest age benefits can begin -- is a far more popular age to claim than 70. That's because many people are forced to retire ahead of schedule and need their benefits as soon as possible.
Since there's a good chance you'll become one of the millions of Americans who must claim benefits sooner than planned, you can't count on the bigger benefit that comes from delay.
2. Social Security could see big cuts in 2035 or earlier if lawmakers don't act
Social Security's trust fund isn't in great shape, and the most recent trustee's report warned that the combined retirement and disability trust funds will be depleted by 2035. This report was prepared pre-COVID, and the coronavirus is likely to hasten when the trust funds run dry due to a drop in revenue collection resulting from high unemployment.
While the trust fund running dry doesn't mean you won't get any benefits, it does mean an automatic cut would have to occur -- to the tune of 24%. That could substantially reduce your checks.
Lawmakers probably won't let that happen, but finding a compromise to avert this disaster has thus far proved elusive. And any legislation for a financial fix could also lead to a reduction in benefits. With Social Security's finances so shaky, you can't necessarily count on getting the full amount you were promised.
3. Benefits aren't very big even in the best case
Even if no benefit cuts occur and you wait until 70 to start your benefit, you still probably can't count on a hefty check.
In fact, the average Social Security benefit for retirees will be just $1,543 in 2021. Even if you get a little more than average due to delayed retirement credits or higher earnings throughout your career, your benefit still won't be worth a fortune. And it isn't supposed to be, as it's meant to replace around 40% of pre-retirement income.
4. Benefits are losing buying power
There's one last big problem with depending on Social Security for generous checks. The method used to ensure benefits keep pace with inflation isn't doing a very good job.
As a result, benefits have lost about 30% of their buying power over the past two decades, and this trend probably will continue. Your benefits aren't going to be enough to support you to begin with, and they'll lose value over time.
But if you know in advance your Social Security checks will be smaller than you'd like, you can invest in tax-advantaged accounts throughout your career to build a nest egg that, along with your benefits, gives you enough to live comfortably.