Around 40% of retired Americans say they rely on Social Security “completely” in retirement, according to a recent survey from The Motley Fool. Many workers are also heading into retirement expecting to depend heavily on Social Security. In fact, roughly one-quarter of workers say their benefits will be their primary source of retirement income, a 2022 report from the Transamerica Center for Retirement Studies found.
But just how safe is it to rely solely on Social Security? Can you still retire comfortably on your benefits alone? Here’s what you need to know.
How Social Security plays into your retirement plan
Social Security benefits were originally designed to replace around 40% of a worker’s pre-retirement income.
It can be possible to retire on your benefits alone, then, if you’re able to decrease your expenses significantly. Also, if you’re married and your spouse is entitled to Social Security (either based on their own work record or through spousal benefits), that can make it easier to retire on Social Security alone.
In most cases, though, Social Security, by itself, won’t be enough — and there are a few reasons why.
1. Benefits are losing buying power
Inflation has been surging throughout 2022, but Social Security has been losing buying power for decades. In fact, benefits have lost around 40% of their purchasing power since 2000, according to a 2022 report from The Senior Citizens League.
Despite the annual cost-of-living adjustments (COLAs), Social Security benefits have not been able to keep up with rising inflation over the years. If this trend continues, it will become increasingly difficult to rely on your benefits in retirement.
2. Benefit cuts could be looming
The Social Security Administration is facing a cash shortfall and has been forced to dip into its trust funds to cover this deficit. However, those trust funds are expected to be depleted by 2035, at which point, benefits could be cut by roughly 20%.
Of course, this assumes that Congress won’t find a solution before then. Because lawmakers know how critical Social Security is for millions of Americans, it’s likely they’ll come to some sort of agreement. But if you’re depending solely on your benefits in retirement, that could be a risky bet.
3. You could face more expenses as you age
When you first retire, your expenses may not change drastically. You may even be able to reduce your spending once you’re no longer facing work-related costs.
But as you age, you may face more expensive healthcare bills or other medical costs. Medicare can help cover some of it, but it won’t cover everything. Long-term care, for example, generally isn’t covered by Medicare, and it can cost tens of thousands of dollars per year.
While you may not be able to predict which of these expenses you’ll face or exactly how much they’ll cost, having some extra savings in the bank can ensure you’re better prepared.
Boosting your retirement income
For most people, retiring on Social Security alone will be tough — especially if costs continue to increase and benefits lose more buying power. If you’re able, then, it may be wise to start strengthening your retirement fund so you have some additional savings to fall back on.
Delaying filing for benefits can also increase your monthly retirement income. The longer you wait to begin claiming Social Security (up to age 70), the more you’ll receive each month. In some cases, you could potentially double your benefit amount, compared to filing at age 62.
Millions of seniors rely on Social Security to make ends meet, and there’s nothing wrong with depending on your benefits to some degree. But when you have a good idea of how far that money will go, it will be easier to plan for a more financially secure retirement.
