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3 Harsh Social Security Realities You Need to Face

By Maurie Backman – Aug 23, 2021 at 5:01AM

Key Points

  • Many seniors get a lot of their income from Social Security.
  • The program has a number of flaws that could negatively affect your retirement.
  • Being aware of those drawbacks could help you better plan for retirement.

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Social Security is far from perfect, and relying on it too heavily could come back to haunt you.

Will Social Security play a big role in your retirement? If you don't amass a large enough savings balance, you may need to rely heavily on those benefits once you're ready to leave the workforce for good.

But be careful -- Social Security has its share of flaws, and you may end up with a lot less income from it than expected. Here are a few hard realities about the program you must be aware of.

Two seniors looking at laptop.

Image source: Getty Images.

1. Those benefits won't come close to replacing your former income

Many seniors think they'll do fine living on Social Security alone. But actually, those benefits will only take the place of about 40% of your former paycheck if you're an average earner.

Chances are, you can live on less once you're retired, because you won't face the costs associated with going to work and you also won't have a retirement plan to fund. But can you really live on just 40% of the paycheck you're used to? Probably not. And so if you don't save a decent sum of money for retirement, you could end up cash-strapped.

2. You may not have generous raises to look forward to

Though the coming year's Social Security cost-of-living adjustment (COLA) is shaping up to be a big one, in recent years, those raises have been stingy. And rising Medicare Part B premiums have been leaving seniors with even less money after their COLAs have been implemented.

As a general rule, you shouldn't expect your monthly benefits to increase substantially once you start collecting them. If you think you'll need to boost your retirement income over time, working in some capacity is a better way to go about that.

3. There's a good chance your benefits will be taxed

If Social Security ends up being your only source of income in retirement, there's a good chance you'll get to avoid federal taxes on your benefits. But if you have other income sources (which, to be clear, is a good idea), then up to 85% of your benefits could be subject to taxes at the federal level.

Additionally, there are 13 states that impose their own taxes on Social Security. Depending on where you live in retirement, you may not be able to keep your benefits in their entirety, and that's something you should definitely plan for.

Read up on Social Security

The more you educate yourself about Social Security, the fewer unpleasant surprises you're apt to encounter once you're already retired. These truths about the program may be hard to hear, but it's better that you hear them before your career ends so you can take steps to compensate.

You may, for example, decide to rethink your plans to retire early now that you realize how little replacement income your benefits might provide. Or, you might decide to start a business later on in your career that you can continue to work at during retirement. There are different options to consider, but the key is to know what to expect from Social Security so you're not caught off guard later on.

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