The average retired worker receives about $18,276 from Social Security annually, according to the Social Security Administration. It's not a small sum, but it's also not enough to cover most people's retirement expenses. Retiring on Social Security alone may be possible for some, especially if they have a spouse who is also receiving benefits, but before you decide to chance it, consider the following drawbacks to doing so.
1. It probably won't come close to replacing your pre-retirement income
Social Security was only designed to replace about 40% of pre-retirement income for average workers, though the Social Security Administration doesn't indicate what average earnings are. While many retirees find they're able to get by on less money in retirement than they needed in their younger years, living on 40% of what they're used to can be a tall order.
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Even if you're able to cover all of your essential retirement expenses, like a mortgage or rent payment, groceries, insurance, and utilities, it's unlikely there will be much left over for travel, hobbies, or donating to causes you care about. If these things matter to you, it makes sense to have some additional personal savings you can spend in conjunction with your Social Security benefits.
2. You may have to start claiming early, reducing your lifetime benefit
When you have no personal savings to fall back on, you have no choice but to sign up for Social Security as soon as you leave the workforce. This means early retirement is off the table, because you can't claim Social Security retirement benefits before 62. It also means you may end up getting less money out of the program overall.
Applying for benefits as soon as you become eligible at 62 could be a smart choice for some people, particularly those who don't expect to live long. But if you want the largest lifetime benefit, claiming immediately isn't usually wise. Beginning before your full retirement age (FRA) -- 66 or 67, depending on your birth year -- reduces your monthly checks and possibly your lifetime Social Security benefit.
If your FRA is 67 and you're entitled to a $1,000 benefit at this age, you'd only get $700 per month if you began claiming at 62. You'd have five extra years to claim benefits, but eventually the balance tips in the favor of those who waited to claim. By the time you're 87, you'd have received $210,000 from Social Security if you took your $700 monthly benefit beginning at 62. But if you'd waited for your $1,000 benefit starting at 67, you'd have received $240,000 by 87.
Having retirement savings of your own to rely upon can help you enjoy retirement while delaying Social Security until you're eligible for larger checks, if you decide this is the right move for you. And if you'd rather claim right away, you will still have that option.
3. Social Security could face cuts in the future
Social Security has been in trouble for a while now. For many years, projections said the program's trust funds would be depleted in the mid-2030s, but the pandemic and its effects on the economy now have some concerned that it could happen before the decade is out. The trust funds' depletion won't end Social Security, but the program could see benefit cuts if the government doesn't step in and make some changes to it.
If the Social Security Administration is forced to cut benefits, that could make surviving on Social Security alone even more challenging than it already is. You may struggle to pay for your basic needs, turning retirement into a stressful time of penny-pinching and worry.
Personal savings insulate you against this concern. How much you need depends on what kind of lifestyle you want in retirement, but every little bit will increase your financial security. And if it turns out that the government finds another way to fund Social Security without cutting benefits, you'll have extra cash in retirement you can spend on things you enjoy or pass along to your heirs.
Social Security is an integral part of many people's retirement plans, and it's going to be around for many years to come. But it was never designed to replace personal retirement savings. If you don't already have a 401(k), an IRA, or some other type of retirement account, consider opening one and start making regular contributions as soon as possible.
