4 Signs Your Retirement Plan Is Too Reliant on Social Security

Social Security is not supposed to be the only or even biggest source of income for retirees, but many are heavily reliant on the program. Ideally, Social Security will replace no more than 40% of your past earnings. In reality, 37% of men and 42% of women 65 and older receive at least half of their retirement income from the program, according to data from the Social Security Administration.

Even more worrying is that 12% of men and 15% of women rely on Social Security for 90% or more of their post-retirement income. That’s a tough prospect, considering that the average retirement benefit is only $1,872.09 a month as of August 2024, according to the SSA.

The main reason so many people depend heavily on Social Security is they haven’t built up enough retirement savings. An AARP survey released earlier this year found that 20% of adults ages 50 and older have no retirement savings, and more than half (61%) are worried they won’t have enough money to support them in retirement.

If you are approaching retirement age, here are four signs your plan is too reliant on Social Security.

The most important part of any retirement plan is making sure you’re putting away enough money to last throughout your golden years, but many Americans struggle with that. A recent report from Prudential Financial found that 55-year-olds have median retirement savings of less than $50,000, which is “significantly short of the recommended goal.”

The amount of money you should have saved up for retirement varies depending on who you ask. Ally Bank recommends 50-year-olds have five times their annual earnings saved, while Fidelity is more aggressive with a recommendation of six times the salary. By age 60, you should have seven times your annual earnings saved for retirement, according to Ally.

If you are well short of those goals — or have no retirement savings at all — that’s the surest sign that you’ll be too reliant on Social Security.

Your working years are when you should be earning enough money to sock away a decent nest egg — which means your monthly budget should have plenty of room for savings. But if you have a hard time just paying the bills, it’s a sign that you’re not properly prepared for retirement.

A common budget guideline is the 50/30/20 rule, which means putting 50% of your income toward essential expenses, 30% toward discretionary spending and 20% toward savings. Without that 20%, you might end up leaning too heavily on Social Security in retirement.

Debt is one of the biggest budget and savings killers out there. If you go into retirement heavily in debt, then it might mean you don’t have enough savings to pay it down. Carrying too much debt into retirement is another sign that you’ll be too reliant on Social Security.

Dennis Shirshikov, a finance professor at the City University of New York and the head of growth at real estate investing platform GoSummer, recommended keeping your debt-to-income ratio below 36%.

“[This] generally suggests that your debt level is manageable relative to your income,” Shirshikov told GOBankingRates in a recent interview. “This metric provides a clear picture of your financial health and repayment ability.”

Putting your money into savings alone is not the best way to prepare for retirement. Instead, you should keep a balanced portfolio that spreads your money among different asset classes such as stocks, bonds, funds, real estate and other investments. Doing so not only reduces risk, it also guarantees higher returns, which will lessen your dependence on Social Security in retirement.