Please ensure Javascript is enabled for purposes of website accessibility

Why You May Wind Up Relying More on Social Security in Retirement Than You Expect To

By Katie Brockman – Jun 7, 2020 at 5:07PM

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

Are you planning for your future as well as you think you are?

The median amount that U.S. workers have saved for retirement is just $50,000, according to a recent report from the Transamerica Center for Retirement Studies. Even among baby boomers -- the generation that is currently in the midst of retiring -- the median worker only has about $144,000 socked away. For many, that amount of money likely will be depleted after just a few years in retirement.

Fortunately, Social Security benefits will provide retirees with a steady income stream to supplement whatever they have saved. Unfortunately, many people underestimate just how much they'll wind up depending on those monthly checks in retirement.

Senior couple looking at a laptop and documents

Image source: Getty Images

Social Security's role in retirement

Half of America's pre-retirees expect Social Security benefits to be a major source of income for them in retirement, a 2019 survey by the Society of Actuaries found. However, among those who actually are retired, 64% say Social Security provides a major share of their income. In other words, a significant fraction of them overestimated the amount that other sources would contribute to their budgets. If you're not smart about planning for retirement, there's a fair chance that you too may end up depending on your benefits more than you expect to.

There are two main problems with relying too heavily on Social Security, however. First, the program is only designed to replace around 40% of your pre-retirement income -- it's not meant to cover the lion's share of your budget in retirement. Additionally, there's a chance that benefits could be reduced for everyone in the not-so-distant future.

The program will soon begin distributing more money than it takes in, at which point it will start rapidly drawing down on the Social Security Trust Fund. Based on current forecasts from the SSA Board of Trustees, that fund could run dry as early as 2034, at which point benefits would have to be cut by nearly 25%. That's assuming that Congress doesn't agree on a solution to the program's cash shortage problem before then.

If Social Security winds up being your top source of income in retirement, these potential cuts could significantly affect your lifestyle. But regardless of what happens with Social Security down the road, it's a good idea to be prepared for anything.

Preparing for retirement without Social Security

Even if there are cuts to Social Security, you'll still be able to depend on your benefits to some degree. However, it's smart to plan for retirement with the goal of having Social Security benefits make up a relatively small portion of your income.

The obvious way to reduce your dependence on the government's pension program is to save and invest more in your retirement savings accounts. That's not always easy, but the sooner you start, the longer you'll have to take advantage of the power of compound growth. So start early, and make a habit of combing through your budget to see if there are areas where you can cut back, enabling you to route more cash into your investments. You may need to make some sacrifices, but those can set you up for a more financially secure retirement.

In addition, you may consider waiting a few years longer before filing for Social Security. Americans can claim their benefits as early as age 62, but you'll receive less money each month if you do so. The longer you wait to file for benefits (up to age 70), the bigger your checks will be. Not everyone will be able to wait that long to begin claiming, but if you can swing it, delaying benefits can be a smart option to boost your annual retirement income.

Social Security is an important factor to consider when preparing for retirement, but it's equally important to make sure you're being realistic about how much you can rely on your benefits to provide. By beefing up your savings and maximizing your monthly checks, you can ensure you're as prepared as possible for retirement.

The Motley Fool has a disclosure policy.

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 09/27/2022.

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.