4 Reasons Not To Rely Heavily on Social Security for Retirement
Written by
Kerra Bolton
Edited by
Molly Sullivan
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While many Washington lawmakers have promised not to touch Social Security, relying too much on the federal program could be risky for older adults eyeing retirement.
According to the latest U.S. Social Security Administration data, the average monthly benefit last year was nearly $1,900. This is barely enough in many states to cover basic living expenses, let alone emergencies. In addition, there may not be enough money to fully fund Social Security in the next 10 years.
Here are four reasons not to rely heavily on Social Security for retirement.
Unforeseen Events
Relying too much on Social Security exposes retirees to risks outside their control, such as legal changes, inflation and rising medical expenses.
“You want to structure your retirement plan so that it will provide for you no matter what happens to Social Security,” said Neal Shah, chairman at Counterforce Health, a health tech company that helps retirees navigate insurance plans and the healthcare system.
“Your retirement plan should not hinge on a program that could undergo big changes or even come apart at the seams,” Shah said.
An Uncertain Future
Unless Congress acts quickly, the Social Security Trust Fund faces a shortfall within the next decade.
According to data from the U.S. Social Security Administration, the trust fund can pay full benefits until 2035. After that, retirees could see less money in their Social Security checks.
“The type and timing of events that can affect the trust fund are so varied that some forecasters see a possibility for the fund to last quite a bit longer, while others see a fund that lasts quite a bit less time and pays quite a bit less in benefits,” Shah said.
Shah explained, “Benefits can be permanently reduced by as much as 30% if seniors claim before full retirement age. Yet, as with most financial decisions, this one is best made considering both likely and possible scenarios.”
Retirees should consider both the upside and the risks of delaying benefit claims when deciding how much of a role Social Security benefits play in their retirement savings.
You Aren’t Close to Retirement Age
Social Security is often considered “the third rail” in American politics. The term means that the issue is so controversial that any lawmaker who dares to challenge or change it could face reelection consequences.
Older adults currently in retirement and receiving Social Security aren’t likely to experience a significant change in their benefits, even as a potential shortfall looms. However, Jay Zigmont, PhD, CFP, and founder of Childfree Wealth, said that might not be true for younger generations.
“For my Gen X and Y clients, I usually plan on them receiving only 75% of stated benefits,” Zigmont said. “Some clients do not plan to receive Social Security, which is not a bad option. It is a bonus if they get a benefit and any cut will not impact their plans.”
It’s Not Enough
According to a Gallup News survey, 23% of retirees said Social Security was their only income source. While 60% of older adults relying primarily on Social Security said they had enough money to live comfortably, the remaining 40% said they were struggling.
“The average Social Security check does not cover basic living expenses in retirement,” said Melanie Musson, finance expert at Clearsurance. “The point of Social Security, when it started, was to become a dependable retirement plan, providing adequate income for retirement spending.”
Musson explained, “That’s not how it turned out, however. Many people live on Social Security alone, but live on very little.”
Zigmont said relying only on Social Security income was particularly challenging for older adults living in a state with high living costs.
“Social Security has a built-in cost-of-living adjustment (COLA),” Zigmont said. “The challenge is that any COLA comes after a year with high inflation.”
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