For tens of millions of Americans, Social Security isn't just a check -- it's a financial lifeline that helps them make ends meet each month. According to an analysis from the Center on Budget and Policy Priorities, the mere fact that Social Security is providing benefits to more than 62 million eligible beneficiaries a month is keeping 22.1 million people above the federal poverty line. Out of these 22.1 million, 68% are retired workers. 

Yet Social Security also is something of a disappointment for some of those currently receiving a benefit, based on new findings from the Nationwide Retirement Institute that were obtained by USA Today.

A senior citizen counting cash in his hands.

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You'll probably be disappointed by your Social Security check

According to the 1,013-person online survey conducted by Nationwide of adults aged 50 and older who either already are receiving benefits or plan to, half of current retirees lean on Social Security as their primary source of income, with 42% of future retirees planning to rely on it as their primary source. Yet per the March 2018 snapshot from the Social Security Administration, the average retired worker benefit was only $1,409.91 a month, which hardly seems like enough to support rising medical, housing, and food costs. 

One of the glaring differences in the survey found that current retirees were receiving an average of $1,257 each month, but future retirees were expecting to receive $1,628 per month. "There's a major disconnect between what consumers think their Social Security benefit will be -- and cover -- compared to reality," said Tina Ambrozy, president of sales and distribution at Nationwide. In total, 27% of retired Americans reported that their Social Security benefit was "less than expected." 

Here's why Social Security benefits are coming in lower than expected

Why are so many Americans disappointed by their eventual payout? The answer likely has to do with a confluence of factors, some of which were covered by Nationwide.

A person filling out a Social Security benefits application.

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1. Retired workers are filing early for benefits

To begin with, claiming age plays a big role in determining what you'll receive each month. Benefits can begin at age 62 or any point thereafter, although workers are encouraged to wait by a dangling carrot of sorts. This "carrot" is a roughly 8% increase in your payout for each year that you hold off on enrolling, beginning at age 62 and continuing until age 70.

According to data from the Center for Retirement Research at Boston College, 45% of retirees claim benefits at age 62. This means that they're taking a cut in monthly benefits of possibly up to 25% to 30% relative to what they'd have received had they waited until their full retirement age -- the age at which they would have received 100% of their retirement benefit, as determined by their birth year.

2. Retirement isn't always on your schedule

Another issue is that some workers have had little choice but to retire earlier than expected. It's easy to circle a year on the calendar and promise yourself that you'll claim Social Security benefits at a specific point in time. But if you run into health problems, lose your job and are unemployed for an extended period of time, or simply need money to cover bills or pay down debt, then you may have no other choice but to claim benefits earlier than expected and, in the process, accept a reduction in your monthly payout if your claiming age is prior to your full retirement age.

A senior man shrugging his shoulders.

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3. Social Security knowledge is limited

This may come as little surprise, but most people don't really understand the ins and outs of Social Security. Nationwide found that 57% of respondents believed they were eligible for benefits earlier than they actually were and 88% of those surveyed admitted not knowing what factors determine their monthly benefit. For you curious folks, your earnings history, work history, claiming age, and birth year are the four immediate factors that'll determine your monthly benefit, but there are ultimately seven factors that can directly or indirectly impact your Social Security take-home check.

4. Social Security's purchasing power is declining

Yet another problem that seems to get little attention is the fact that purchasing power of Social Security dollars has declined by an estimated 30% since 2000, according to an analysis from The Senior Citizens League. Social Security's inflationary tether, the Consumer Price Index for Urban Wage Earners and Clerical Workers, measures the spending habits of working-age urban and clerical workers. As a result, seniors, who make up the bulk of Social Security recipients, often have their medical and housing expenditure inflation underreported, leading to insufficient annual cost-of-living adjustments.

Scissors cutting through a hundred dollar bill.

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This is why we should be really concerned

As if these concerns aren't enough, there's another big worry on the horizon for Social Security.

The 2017 report from the Social Security Board of Trustees estimates that the program will begin paying out more in benefits than it's generating in revenue by 2022. Just a dozen years later, in 2034, the program's approximately $3 trillion in asset reserves is projected to be completely gone.

The good news here is that Social Security's 12.4% payroll tax ensures that the program won't go bankrupt. As long as people keep working, the payroll tax will do its job of collecting revenue to be disbursed to eligible beneficiaries. The bad news is that an estimated 23% across-the-board cut in benefits may be needed to sustain payouts through 2091. 

In summary, we have a program with declining purchasing power that could be facing a 23% haircut in payouts in 16 years' time. We also have retirees who don't understand how to maximize their lifetime benefit. And to top everything off, we have a deeply partisan Congress that's been unable to find a middle ground to fix Social Security, despite each party having a workable solution.

I'd say these are all reasons today's workers need to steer clear of relying on Social Security as a primary income source during retirement.

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