Two-Thirds of Retirees Rely Too Heavily on Social Security. Don't Be One of Them

While it's not a pleasant thought, many Americans are not prepared for retirement. In fact, 46% of baby boomers have nothing at all saved for retirement, according to a study from the Insured Retirement Institute.

Despite so many soon-to-be retirees falling short on their savings, only 36% of Americans say that Social Security will be a major source of income during retirement, according to the 2018 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI).

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Herein lies the problem. Although only 36% of people say they expect to depend on Social Security as a major source of income, 67% of retirees actually end up depending on it, according to the EBRI survey. Combined with the fact that many aren't saving enough on their own, this means a lot of retirees are stepping into retirement unprepared.

Why Social Security shouldn't be a safety net

It's OK to have some reliance on Social Security during retirement -- after all, you earned it after a lifetime of working. But you shouldn't be depending on it to make ends meet.

While Social Security benefits do bring regular paychecks, they may not be quite as dependable in the future. With so many baby boomers retiring (roughly 10,000 each day, according to the Pew Research Center) and life expectancies continuing to increase, benefit cuts are a real possibility. By 2035, according to the Social Security Administration Board of Trustees, the excess cash reserves within the system will be depleted. While this doesn't mean that the program will collapse (since Social Security is funded through taxes), it could result in benefit cuts. Of course, Congress could come up with a solution before 2035, but it's wise not to trust your retirement to a government fix that may or may not happen.

The best way to make sure you don't rely entirely on Social Security to make ends meet is to bulk up your own savings. While that's easier said than done, there are two things you can do:

1. Take full advantage of your 401(k)

If you're lucky enough to work for an employer that offers matching 401(k) contributions, take full advantage -- it could double your retirement savings. In an ideal situation, you'd contribute enough to earn the full match. But even if you can't save that much, every little bit counts.

For example, say you're earning $45,000 a year and your employer will match 100% of your 401(k) contributions up to 3% of your salary (or up to $1,350 per year). Let's also say that you're contributing $50 per month, or $600 per year. Your employer matches that, making your total contributions $1,200 per year.

But if you began contributing $75 per month (or $900 per year) which would bump your total yearly contributions to $1,800, including the employer match, here's what your total savings would look like in comparison after 20, 30, and 40 years, assuming a 7% annual rate of return on your investments:

DATA SOURCE: CALCULATIONS BY AUTHOR.

So while an extra $25 per month may not seem like much, when your employer doubles it, the difference can be more than $100,000 over the long run.

2. Delay taking Social Security benefits

While you shouldn't rely on Social Security benefits as a major source of income during retirement, that doesn't mean you can't factor them into your retirement plan. And if your own savings are falling short, it's a good idea to squeeze every penny out of your benefits.

You're able to claim benefits as early as age 62, but you won't receive the full amount you're entitled to until you reach your full retirement age (FRA), which is 65 to 67, depending on the year you were born. And if you delay benefits beyond FRA (up to age 70), you'll receive bigger checks to make up for the years you weren't receiving them.

Also, if you continue to work up until age 70, that gives you a few more years to contribute to your retirement fund and build up your own savings. And those few years can make a major difference in your total savings.

For example, let's say you're considering retiring and claiming benefits at age 62, and you currently have $100,000 in your retirement fund. Let's also say your FRA is 67, and you would be receiving $1,400 per month in Social Security benefits if you wait until that age to claim. By claiming at 62, your benefits will be cut by 30%, leaving you with $980 per month.

If, on the other hand, you wait until age 70 to retire and claim Social Security, you'd receive a 24% boost in benefits, giving you $1,736 per month. Also, let's say you were contributing $100 per month to your retirement fund while you were working. If you continued working another eight years to retire at age 70, assuming a 7% rate of return on your investments, that's another $184,592 you could have saved. So not only are you nearly doubling your Social Security benefits each month by waiting a few years to claim, but you're also nearly tripling your own retirement fund rather than draining it.

Social Security is a great asset to help fund your retirement, but it shouldn't be the only tool in your toolbox. By bulking up your own savings, you can make the most of your retirement by ensuring you're not relying too heavily on Social Security.