If you're like most Americans, Social Security is going to make up a big part of your income in retirement. But, just how much of your income can realistically come from your Social Security benefits? Unfortunately, it's less than you think. 

Social Security is not designed to be your sole source of support during retirement -- it's designed to be just one of several sources of income, along with savings and pension benefits. Unfortunately, studies show most baby boomers think Social Security will do more for them than it's designed to do. 

Binder labeled retirement savings plan with a calculator on top of it

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Most baby boomers expect too much of Social Security 

According to the NHP Foundation, 62% of baby boomers think Social Security will provide more than half of their income during retirement. Here's the problem with that: Social Security benefits replace only around 40% of income -- and this percentage is lower for higher earners.  

Living off of 40% of income is just not possible for most seniors, and relying on Social Security benefits to provide more than half your household earnings is likely to leave you struggling. Just consider average benefits for retirees in 2018, which are just $1,404 per month, or $16,848 annually.

If Social Security made up more than half your income and you received average benefits, $33,697 would be the absolute most your annual income could be in 2018. With mean healthcare costs for seniors coming in at close to $6,000 annually , you'd likely have well under $30,000 to cover all other costs, including housing, transportation, and food. And that would be a best-case scenario. 

What can you do if Social Security isn't worth as much as you thought?

Ideally, you'll save for retirement throughout your career and have plenty of investments by retirement age to produce the income you need to supplement your Social Security benefits. 

Of course, baby boomers who are already nearing retirement may not have the time to build up a big nest egg. If you're close to retirement or are retired already and are planning on Social Security covering more than half of your living expenses, you'll likely want to take steps to increase Social Security benefits or cut costs of living. These steps could include:

  • Waiting as long as possible to claim Social Security benefits: By waiting to claim benefits, you earn delayed retirement credits and increase your Social Security income. Your standard benefit amount is based on retiring at full retirement age. Retiring earlier could reduce benefits by around 6.7% per year, while retiring after FRA increases benefits by around 8% annually up until age 70.   
  • Working a few extra years at the highest paying job you can find: Social Security bases benefits on your highest 35 years of earnings, adjusted for wage growth. If you haven't worked at least 35 years, some $0s will be averaged in, and benefits will be lower. If you're earning far more now than at the start of your career, an extra year of work means a year of higher salary replaces one of your lower-salaried years. 
  • Working while on Social Security: If you work while receiving Social Security before your full retirement age, you'll see your Social Security benefits reduced based on your earnings. But, after you've reached FRA, you can work as much as you want, and benefits won't be affected. The extra money you earn from working can supplement Social Security.
  • Move to a place that doesn't tax Social Security. There are 13 states that tax Social Security benefits, which means there are 37 states that don't. By moving to a locale that's more tax friendly to retirees, you could make your Social Security benefits stretch further. 

Living on a budget also helps you make the most of Social Security income. In fact, making a detailed retirement budget and comparing it to your projected Social Security benefits will help you determine if you're ready to retire, or it can help you see if you need to make big changes during retirement because Social Security clearly isn't enough. 

Relying on Social Security puts you in a tight spot

Social Security will undoubtedly be an important source of your retirement income. But, it can't be your only source of retirement income, or even necessarily your primary source.

If you have time to save as much as possible to supplement Social Security, that's the best course of action. But, if you're a baby boomer in retirement, or close to it, with unrealistic expectations about what Social Security will do for you, it's time to start considering ways to cut costs or bring in some extra money so you don't face constant financial struggle during what's supposed to be your golden years. 

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