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Today's Workers Refuse to Rely on Social Security, and That's a Good Thing

By Maurie Backman – Jun 23, 2020 at 5:04AM

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Though Social Security is not at risk of disappearing, it's wise to regard it as a minor source of retirement income -- not a major one.

Social Security currently serves as a major income source for millions of older Americans. But younger folks refuse to let themselves fall back on it.

In fact, only 17% of millennials expect Social Security to be their primary source of retirement income, according to a recent Transamerica survey, and just 26% of Gen Xers feel similarly. Even baby boomers are less enamored with Social Security, with only 37% citing it as a major income source during their senior years. This attitude about Social Security is extremely encouraging for a couple of important reasons -- reasons all workers should be aware of.

Social Security card

Image source: Getty Images.

1. Social Security can't sustain most seniors by itself

It's easy to assume that Social Security will provide enough income to cover all of your future financial needs, but in reality, it won't. Those benefits succeed in replacing about 40% of the average worker's pre-retirement income, but most seniors need a good 70% to 80% of their former earnings to maintain a decent standard of living.

Or to put it another way, the average senior on Social Security today collects around $1,500 a month, or $18,000 a year. For most people, even those willing to live frugally, that won't buy a comfortable lifestyle -- not even close.

2. Social Security benefits may be subject to future cuts

Right now, seniors who earned an average wage during their working years can expect Social Security to replace around 40% of their former income. But that percentage of replacement income might change in the not-so-distant future.

Social Security is projecting a revenue shortfall in the coming years as more and more baby boomers exit the workforce. The program gets the bulk of its revenue from payroll taxes, so as an increasing number of older Americans stop working and instead start drawing benefits, the program won't take in enough money to keep up.

Social Security does have trust funds it can tap to make up for that expected revenue shortfall, but once those funds run out of money, benefit cuts may be on the table. Right now, those trust funds are projected to run dry by 2035, but the COVID-19 crisis could push up that date due to lost payroll tax revenue from high unemployment over the past three months alone. As such, benefit cuts may be unavoidable, and they may happen sooner than we'd like to think.

Don't rely too heavily on Social Security

While it's certainly OK to factor Social Security into your retirement planning and expect some income from it, don't make the mistake of designating it as your primary income source. Rather, your main stream of income should be your 401(k) or IRA, coupled with outside investments you hold (stocks, bonds, or real estate) and earnings you generate via a business or part-time job.

Social Security's future is shaky. While those benefits aren't going away completely, you're better off assuming you'll mostly get by without them. And the younger you are when you realize that, the more empowered you'll be to make smart choices that allow you to amass the retirement wealth you need.

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