Millions of seniors today collect a monthly benefit from Social Security. Some use that money in conjunction with other income sources, like withdrawals from a savings plan. But for many retirees, the benefit they receive from Social Security is the only income at their disposal.
Now, you may be under the impression that you'll have no problem relying on only Social Security once your time in the workforce comes to an end. But that's a myth that could ruin your retirement beyond belief.
You can't bank too heavily on Social Security
Social Security is a complex program, so it's easy to see how misinformation might emerge. But perhaps the most dangerous Social Security myth out there is that it's easy to retire comfortably on Social Security alone.
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You might be able to retire only on Social Security. But you shouldn't expect that to lead to a comfortable lifestyle. See, Social Security will only replace about 40% of your pre-retirement income, assuming two things:
- You earn an average wage.
- Benefit cuts aren't implemented.
You can expect even less replacement income from Social Security if you're a higher earner. And if benefit cuts come down the pike, everyone will see their Social Security checks shrink.
Now, think about your current expenses. Do you really expect them to shrink by 60% in retirement? Sure, you might manage to pay off your mortgage by then, and you might save a little money by no longer commuting to an office every day. But does that equal 60% of your spending?
Of course, there's another variable to think about -- retirement plan contributions. If you're in the habit of making them, that's another expense you'll be able to shed once you retire. But if you're planning to retire on Social Security alone, you're probably not pumping money into an IRA or 401(k). So that may not factor in when you compare your current expenses to those you anticipate bearing in retirement.
Don't set yourself up for stress during your senior years
If you retire on Social Security and only Social Security, you might manage to get by. But that doesn't mean you'll be able to enjoy your life or manage your bills without constant worry.
So rather than plan to retire on Social Security alone, aim to build yourself a nest egg you can use to supplement those benefits. Socking away even a small amount of money in an IRA or 401(k) each month could go a long way over time.
And if you don't have a long time, aim to contribute generously to one of these accounts between now and your expected retirement date, even if it means having to cut back on other near-term spending to make that happen. Retiring on Social Security alone is a move you're more likely than not to regret. And even if you keep hearing that it's possible, that doesn't mean it's the situation you want to sentence yourself to.
