Why Relying on Social Security Is a Risky Bet — and How To Build a Backup Plan
Written by
Laura Bogart
Edited by
Kristen Mae
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Traditionally, Social Security has been considered a pillar of retirement planning — at least for your parents and grandparents. But for the generations nearing retirement today, relying on Social Security no longer feels like such a safe bet. Headlines warn that the Social Security trust fund reserves could face a funding shortfall by 2033, potentially leading to reduced benefits for recipients.
If the idea of developing a retirement income plan that doesn’t hinge on Social Security makes you a little nervous, don’t worry. According to experts, Social Security was never intended to be the foundation of a secure retirement — and building a backup plan is easier than you might think.
GOBankingRates spoke with financial experts to learn why you shouldn’t put all your nest eggs in the Social Security basket — and what smart money moves to make instead.
Social Security Was Never Meant To Be a Primary Source of Income
Adam Spiegelman, CFP, founder and wealth advisor at Spiegelman Wealth Management, encourages retirees to view Social Security income as a bonus — not the foundation — of their retirement.
He said Social Security was never designed to be a retiree’s main source of income. That concern is even more pressing now, as people live longer and the Social Security trust fund is projected to run short by the 2030s without congressional intervention.
Other factors — including high inflation, rising living costs and demographic changes in who is paying into the system — also make relying on Social Security an unwise decision.
“Demographics are a major challenge — decades ago, there were about 16 workers per retiree. Now it’s closer to three to one,” Spiegelman said. “Less money is going in, more is going out, and rule changes like raising the retirement age or reducing cost-of-living increases can shrink benefits. Retirees need to plan for the possibility of receiving less than they expect.”
Diversification Is Key to a Strong Backup Plan
When Spiegelman and his team work with clients, they often discount Social Security in their projections to ensure clients are secure even without it.
“The goal is to diversify so retirement doesn’t depend on a single, uncertain stream,” he said.
According to Spiegelman, strong retirement plans include a variety of income sources, such as investments, employer-sponsored plans, savings, taxable accounts and, when appropriate, annuities.
This concept resonates with Ronnie Cox, investment director at Human Interest Advisors, who adds that leveraging tax-advantaged savings accounts — such as a 401(k) or IRA — can be critical for building a durable, diversified retirement plan.
“These accounts enable savings to grow on a tax-deferred basis, increasing the capital at work in the market,” Cox said. “Depending on the plan, participants may also benefit from access to lower-cost, institutionally priced investment options. A well-funded portfolio, built over decades, could help provide the essential foundation and flexibility needed to implement a diversified and resilient income strategy that doesn’t solely rely on Social Security in retirement.”
Build a Guaranteed Income Floor
Cox also recommends retirees establish a “guaranteed income floor” — a safety net to cover essential expenses. Social Security can be a part of this, but he also suggests including annuities as a reliable building block.
“These give you predictable income streams for life, allowing you to set a floor on your monthly income and giving you a higher degree of certainty that you can cover basic expenses throughout retirement,” he said.
Create a Flexible Paycheck
In addition to your income floor, Cox recommends building a “flexible paycheck” — money withdrawn from savings and investments to cover discretionary spending.
“You can use a systematic withdrawal plan like the 4% rule, though one could use a more dynamic version that adjusts for market conditions,” he said.
Consider Guaranteed Minimum Withdrawal Benefits
Cox also favors a hybrid strategy that blends flexibility with security — like certain annuities that provide guaranteed income while still allowing for market growth. These products, known as guaranteed minimum withdrawal benefits (GMWBs), offer a stable income base while allowing you to benefit from market gains.
Start Planning as Early as Possible
The best time to start building a retirement strategy that doesn’t depend on Social Security is right now. The earlier you begin, the more you’ll benefit from compounding over time.
Spiegelman calls compounding “the secret weapon,” since starting early reduces the amount you need to save monthly.
“Someone who starts saving in their 20s with less than $200 a month can grow their nest egg to $1 million by 65,” h said. “But if they wait just 10 years, they’ll need to save more than twice that amount every month to reach the same goal. Employer plans and Roth accounts make it easy to save consistently and take advantage of tax benefits.”
Bottom Line
As you look ahead to retirement, it’s time to rethink the assumption that Social Security will be your primary source of income. It wasn’t meant to be — and it shouldn’t be. Instead, a diversified, multifaceted approach that includes investments, savings and guaranteed income sources is your best bet.
Consider working with a trusted financial professional to build a plan tailored to your unique needs and goals.
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