Retirement planning isn't easy, so if you're falling behind on your savings, you're not alone.
The median amount workers have saved for retirement is just $27,376, according to Vanguard's 2023 How America Saves report. This means many retirees will end up relying on Social Security and other sources of income to pay the bills.
This isn't necessarily a bad thing, but in some cases, it could spell trouble. And new research suggests that nearly one-quarter of older adults are making a particularly worrisome mistake.
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How much can you rely on Social Security?
Around 21% of adults age 50 and up say they have no other sources of retirement income outside of Social Security, according to a 2023 survey from the Nationwide Retirement Institute.
While Social Security can go a long way in retirement, it was never designed to be a sole source of income. The average retiree collects around $1,839 per month in benefits, as of July 2023, which amounts to just over $22,000 per year. For most retirees, that's not nearly enough to live comfortably.
Social Security's cash problems could also make it harder to survive on benefits alone. The program is quickly running out of reserves in its trust funds, and if Congress can't find a solution soon, benefits could be slashed by up to 20% by 2034.
Also, as inflation continues to soar, benefits don't go as far as they used to. Despite annual cost-of-living adjustments, Social Security has lost around 40% of its buying power since 2000, according to a 2022 report from The Senior Citizens League.
Between potential benefit cuts and loss of buying power, Social Security may not be as helpful in the future. If you're relying on it entirely in retirement, that could spell trouble for your finances.
What you can do about it
You may not be able to change Social Security's financial situation or the impact of inflation. But you can take steps to increase your savings. Even small steps can add up over time, especially if you start now.
For example, say you're 50 years old and plan to retire at 65. If you're able to invest just $200 per month while earning a modest 7% average annual return, that would amount to just over $60,000 by retirement.
Will that be enough for a lavish retirement lifestyle? Probably not. But it does equate to roughly three years' worth of benefits for the average retiree.
You could also consider delaying Social Security to earn a boost in benefits. The earliest you can file is age 62, but for every month you wait, you'll receive slightly larger checks. Delay Social Security until age 70, and you'll receive your full benefit amount, plus a bonus of at least 24%.
For example, say you have a full retirement age of 67 years old, and by filing at that age, you'd receive $1,800 per month. If you were to claim at 62, your benefits would be permanently reduced by 30%, leaving you with $1,260 per month.
On the other hand, if you were to wait until 70 to claim, you'd receive your full benefit amount, plus an extra 24%, or $2,232 per month -- a whopping $972 more per month than you'd receive by filing at age 62.
The future of Social Security is uncertain
Social Security wasn't designed to be your only source of income in retirement, and the program's financial struggles may exacerbate that problem. If you find that you're going to be relying heavily on your benefits, now is the time to figure out a plan B.
If you can swing it, it's wise to start saving as much as you can right now. Otherwise, consider delaying benefits to build a cushion against potential cuts and loss of buying power. The more you can prepare now, the better off you'll be in retirement.
