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15 Reasons Not to Solely Rely on Social Security for Retirement

By Christy Bieber - Jul 19, 2021 at 7:00AM
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15 Reasons Not to Solely Rely on Social Security for Retirement

Social Security shouldn't be your only retirement income source

Social Security is a reliable, consistent source of income in retirement. But it can't be your only source of funds as a senior.

In fact, there are 15 really big reasons why you need to have additional money saved to supplement your Social Security checks. Read on to find out what they are.

The $17,166 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $17,166 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

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Hands pulling a paycheck out of an envelope.

Social Security is designed to replace only 40% of preretirement income

Most retirees need to replace at least 80% of their preretirement earnings. Otherwise, their quality of life will decline dramatically.

You can't do that with Social Security alone. These benefits are only intended to replace 40% of preretirement earnings. For most people, it's simply not possible to absorb a 60% reduction in take-home earnings upon retirement and still enjoy their later years.

That means you'll need to get money from some other source to replace more of your preretirement earnings.

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Financial advisor meeting with clients.

2. The average Social Security benefit is just $1,533

In 2021, the average Social Security benefit is only $1,553.68. That means the typical retiree trying to rely only on Social Security would have an annual income of about $18,644.

An annual income at this level doesn't provide enough to cover the necessities for many retirees -- especially those in high cost-of-living areas.

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Adults sitting with baby while reviewing paperwork.

3. It's hard to increase your benefit substantially

Another reason it can be difficult to live on Social Security alone is that it's challenging to increase your benefit substantially.

While you can raise the size of your checks by delaying your claim for benefits, doing so would mean forgoing income for years, so it may not be doable.

And as far as raising your standard benefit, that's calculated by average wages over your 35 highest-earning years. So, while increasing your income can raise your benefit amount, you'll need to earn at that higher level over a number of years to make a noticeable difference in the size of your Social Security checks.

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4. People who get big Social Security benefits often have higher expenses

The maximum Social Security benefit in 2021 is $3,895. And while that may seem like it would provide plenty to live on, the reality is that very few people get the maximum benefit.

Those who did get this much money from Social Security are people who earned a lot of money over a full 35-year career. That's because you need to earn income equal to or exceeding the wage-base limit for 35 years to get the maximum benefit.

In 2021, the wage base limit is $142,800 -- so retirees would essentially have to earn the inflation-adjusted equivalent of that amount every year for 35 years to max out their Social Security checks.

For people used to earning an income at that level, an annual income of $46,740 would be a huge pay cut. So even people who earn the max benefit need supplementary income.

The $17,166 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $17,166 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

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Doctors sitting at conference room table discussing paperwork.

5. You could end up spending a significant amount of your benefits on healthcare

According to an older study conducted by Nationwide, retirees who claim Social Security benefits at 62 could end up spending an average of 64% of their monthly benefits on healthcare. And healthcare costs are only going up for seniors.

Since a huge portion of your checks could be eaten up by Medicare co-pays, coinsurance costs, and premiums, as well as out-of-pocket medical expenses, you'll need other money later in life.

ALSO READ: What Will Healthcare Cost You in Retirement? Prepare to Be Shocked

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Person standing with arms crossed and looking out of office window.

6. You may need to retire before you can (or should) claim Social Security

Many people end up having to leave the workforce at a younger age than they had planned due to a lack of work opportunities or because their health or family issues necessitate retirement.

If you have to retire before you become eligible for Social Security, or before the age when you wanted to claim your benefits, you will need other savings to live on until your retirement checks begin coming.

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Two people sitting on couch with coffee mugs.

7. Delaying your benefits might leave you with more lifetime income

Delaying a claim for Social Security benefits until age 70 is the optimum strategy for a small majority of retirees, as this claiming strategy would leave around six in 10 seniors with more lifetime benefits.

If you're going to wait until 70, chances are very good you're going to need to at least cut back on work before claiming benefits, if not quit entirely. That means you need money from savings to fund your lifestyle until the time comes to claim your benefits.

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8. Your spouse may be better off if you delay your benefits

If you are the higher-earning spouse, waiting to claim your benefits could be crucial to protecting your partner. That's because claiming early can shrink survivor benefits.

You don't want to leave your spouse with less to live on, so waiting until 70 could be the best bet for higher-earning husbands or wives. Again, in this situation, you would need to have money to supplement your Social Security checks until you can claim your benefits.

The $17,166 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $17,166 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

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Casket being carried by people in suits.

9. Household income from Social Security could fall dramatically if your spouse dies

For many married couples where spouses had similar incomes, the death of either spouse could lead to a dramatic decline in Social Security income coming into the household.

Say you and your spouse each received about $18,500 per year from Social Security. With your combined household income of $37,000, you might be able to cover many of your essential costs.

But if your spouse passes, their benefits would stop and you'd be forced to live on half of what you were used to -- if you were counting on Social Security alone. You'll need more shared savings to make sure the surviving spouse doesn't have to cope with this difficult financial situation.

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1040 tax form with refund check and hundred dollar bill.

10. You could lose some of your benefits to taxes

Social Security benefits aren't very big to begin with, and some retirees will find their checks get even smaller because they owe state or federal taxes on them.

Taxes don't kick in until your income hits a certain threshold. Unfortunately, that threshold isn't indexed to inflation. Half of all retirees already lose some of their benefits to taxes, and this will happen to more and more people in the future unless the threshold changes.

ALSO READ: 3 Ways to Avoid Taxes on Your Social Security Benefits

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Person working and talking on phone.

11. Working could affect the amount of your checks

If you're planning on supplementing Social Security with a paycheck, you should know you could find your benefits reduced if you're working before you've hit your full retirement age.

If you end up getting less Social Security money than anticipated because of your earnings, you'll need more supplementary savings to make up the shortfall.

ALSO READ: Can You Collect Social Security and Still Work?

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Inflation spelled out on blocks in front of a calculator.

12. Social Security raises aren't keeping pace with inflation

Social Security provides cost-of-living adjustments (COLAs) with the goal of helping seniors maintain their buying power.

Unfortunately, COLAs are calculated by measuring how much prices rise for consumer wage earners and clerical workers. Since this demographic group has different spending habits than retirees, raises don't always accurately reflect the rising prices that retirees experience.

Since raises are often too small to cover cost increases, you'll also need more money from outside sources as you get older.

The $17,166 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $17,166 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

Previous

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Person in scrubs holding the hand of person using wheelchair.

13. Social Security can't pay for long-term care

As you get older, there's a very real chance you could end up needing nursing care or home care services.

The price for this type of aid can total thousands of dollars per month -- well above the amount of the average Social Security benefit.

If you don't have supplementary savings to cover your nursing care expenses, you could be forced to spend down your assets to qualify for Medicaid coverage. That could leave you unable to provide an inheritance for your loved ones.

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Social Security card between hundred dollar bills.

14. A benefits cut is possible in the future

Unless lawmakers take action, Social Security's trust fund could run out of money in 2035. If this happens, a 24% benefit cut could happen automatically since benefits will only be payable out of current revenue being collected from workers.

Action on the part of lawmakers could also result in benefit cuts if they change the full retirement age or the way COLAs are calculated in order to make the program more financially stable.

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The White House.

15. Your retirement security will rely on politicians

If you are relying solely on Social Security, your financial future as a retiree is entirely out of your hands. You'll need to count on the government to give you all the promised benefits you're expecting to live on.

Social Security is a really popular program that's unlikely to disappear. But that doesn't necessarily mean you want to count on politicians always doing the right thing to get you the full benefits you need.

The $17,166 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $17,166 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

Previous

Next

An egg with 401(k) written on it on top of a pile of cash.

It's up to you to save enough for financial security

While you can expect Social Security to play a role in funding your retirement, it's crucial you work throughout your life toward saving up a nest egg to supplement it.

The more money you have saved for your future, the better off you'll be. The extra income your savings provides could enable you to delay Social Security, maintain your living standard after leaving the workforce, or ensure your spouse isn't left in the lurch if you pass away first.

The Motley Fool has a disclosure policy.

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