Please ensure Javascript is enabled for purposes of website accessibility

25% of Retirees Get Less Out of Social Security Than Expected

By Maurie Backman - Updated Feb 12, 2018 at 2:47PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

And that's not a mistake you want to repeat.

Countless seniors depend on Social Security to stay afloat financially. But it turns out a pretty large percentage of recipients went into retirement with a misguided view of what those benefits would cover. In a recent Nationwide study, roughly a quarter of retirees said that their Social Security payments amount to less than they had anticipated. And for those without additional sources of income, that shortfall could wind up being catastrophic.

If you're still working, it's imperative that you know what to expect out of Social Security when you're older. That way, you can plan accordingly and avoid coming up short down the line.

Older man on a sofa, reading a newspaper


You can't live off Social Security alone

One major misconception so many people have about Social Security is that it's possible to live off those benefits alone. In reality, those payments don't come close to covering most seniors' expenses.

In a best-case scenario, Social Security will replace about 40% of the typical worker's pre-retirement income. Most people, however, need around 80% of their former earnings to stay on top of their bills in retirement. And that 80% figure assumes a relatively modest lifestyle. Those looking to travel extensively or pursue costly hobbies will need even more. Even those without lofty retirement goals might wind up exceeding that 80% replacement income threshold -- particularly those with health issues whose medical costs eat up much of their budget. And that's why relying too heavily on Social Security is a dangerous thing -- because if you're not careful, you risk an impoverished lifestyle when you're older.

Another thing today's workers ought to know about Social Security is that benefits for future retirees could get cut if Congress doesn't take steps to address the program's impending shortfall. At present, projections tell us that the program might have to start slashing benefits by up to 23% as early as 2034. And while 77% of what you were expecting is better than not getting benefits at all, it also renders the aforementioned 40% replacement income target inaccurate. In other words, in about a decade and a half from now, Social Security could come to provide well less than half of what the average senior needs in retirement. That's reason enough to start getting serious about saving on your own.

A secure retirement is in your hands

If you've been walking around thinking that Social Security will cover most of your bills in retirement, it's time to set yourself straight -- and start saving for the future. The good news, however, is that if you have a decent number of working years ahead of you, you can amass some pretty respectable savings without sacrificing too much along the way.

Currently, workers under 50 can put up to $5,500 a year into an IRA and $18,500 a year into a 401(k). If you're 50 or older, you get a catch-up opportunity that raises these thresholds to $6,500 and $24,500, respectively.

Of course, many of us can't afford to max out an IRA, let alone a 401(k). But watch what happens if you're able to set aside a mere $200 a month for the remainder of your career:

If You Start Saving $200 a Month at Age:

Here's What You'll Have by Age 65 (Assumes an 8% Average Annual Return):















Data source: author.

You won't get all that far by investing just $200 a month if you're first starting to save at that level in your 50s. But if you're 25 or 30, and sock away $200 a month consistently over time, you stand to retire with quite a decent amount of cash -- enough to not only help pay the bills, but cover whatever potential reduction in benefits the Social Security Administration might be forced to deliver.

And remember, the totals above assume just a $2,400 investment per year. If you can do even a bit better -- say, $3,600 a year instead -- you'll retire with that much more. Oh, and if you're wondering about that 8% return on investment, that figure is actually a bit below the stock market's average annual return. If you load up on stocks, there's a good chance you'll do that well or better.

Relying too heavily on Social Security basically means setting yourself up for disaster. So don't make the same mistake that 25% of retirees have already fallen victim to. Take savings matters into your own hands, and use Social Security for what it's supposed to be -- a means of supplementing the healthy nest egg you bring with you into retirement.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.