Most people couldn't imagine retirement without Social Security to help them. Many beneficiaries get tens of thousands of dollars from the program annually, with the average annual benefit coming in just over $23,000 as of July 2024.
It's a great start, but Social Security was never supposed to be your whole retirement plan. Still, roughly 27% of retirees rely exclusively on their benefits, according to The Motley Fool's recent survey on Social Security. There are some major issues with this, and they're likely to get worse in time if you're not prepared.
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You don't want to retire on Social Security alone
Few people retire comfortably on just their Social Security checks. As mentioned above, the average annual benefit is just over $23,000. You'll get even less if you have money withheld due to Social Security benefit taxes. The government withholds Medicare Part B premiums from Social Security checks for seniors 65 and older enrolled in the program. So, the reality is even less comfortable than it first appears.
Indeed, you'll get cost-of-living adjustments (COLAs) in most years that will increase the size of your checks. However, many argue that COLAs are insufficient. Benefits have lost 20% of their buying power since 2010, according to The Senior Citizens League (TSCL), and this trend could continue. So, even though the dollar value of your checks will likely increase, your buying power could decrease over time.
We also don't know what Social Security will look like beyond the next decade or so. The latest Social Security Trustees Report predicts that Social Security's trust funds will run out in 2035. After that, it'll only be able to pay out 83% of scheduled benefits going forward. The government will likely find a way to shore up this funding issue before then, but we don't know what this might look like.
Because of all these factors, it's risky to rely exclusively on Social Security in retirement. Even if you can do so comfortably today, you'll probably find it more difficult with each passing year.
Alternate sources of retirement income to consider
Having multiple sources of retirement income is the best way to ensure your future financial security. Personal savings are great if you have them. This is your money that you can withdraw as needed. You may owe the government a cut if the funds come from a tax-deferred retirement account or taxable brokerage account, but you have some control over your tax liability by limiting your spending.
If you lack adequate personal savings, you might consider a job in retirement. This doesn't have to be full-time work, nor does it have to be related to what you did before retirement. It doesn't need to pay a high salary either. You just need enough to cover your basic living expenses and any discretionary purchases you want to make that Social Security doesn't cover.
Sometimes, retirement isn't a choice, though. If you don't have personal savings and are unable to work due to health issues, explore other government benefits. Supplemental Security Income (SSI), for example, is a monthly benefit the Social Security Administration administers to the blind and disabled as well as low-income seniors. The maximum federal benefit is $943 per month for individuals and $1,415 per month for couples in 2024. Some states add their own benefit as well.
Consider which of the above strategies appeals most to you right now, and know that they might change over time. You might be comfortable working part-time in your early 60s, but by your 80s, you may want to enter a more traditional retirement. In that case, consider building your savings as much as possible until you leave the workforce. At that point, you can explore other government benefits to see what you may qualify for.
