Millions of seniors today receive ongoing benefits from Social Security. In fact, the average benefit as of early 2023 is $1,827 a month. That's not a small amount of money.
But while it's perfectly OK to factor Social Security in as a notable source of retirement income, you may want to think twice about having it serve as your main source. In a recent Transamerica survey, 24% of workers said they expect Social Security to be their primary retirement income source. And those who feel that way could be setting themselves up for disaster.
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You can't rely too heavily on Social Security
There are a couple of reasons why turning to Social Security as your primary means of funding your retirement is a poor choice. For one thing, if you earn an average wage, those benefits will only replace about 40% of your pre-retirement income. Many seniors, however, need about twice that much income to live comfortably.
Remember, once you enter retirement, it's not just expenses like healthcare, food, and housing you have to worry about. You also want to make sure you're leaving yourself with enough money to stay busy.
If you're short on cash as a senior, you may end up hating retirement due to feeling bored and restless, so that's a situation best avoided. But if you look to Social Security as your primary source of retirement income, you might lack the funds needed to do things like travel, socialize with friends, take fitness classes, and do other things that help keep you occupied and promote good health.
The second reason to not bank too heavily on Social Security for your retirement? Benefit cuts are a distinct possibility.
In a little more than 10 years, Social Security's trust funds are expected to run out of money. Once that happens, the program could be forced to slash benefits due to an ongoing revenue shortfall. So at that point, your monthly benefits might replace even less than 40% of your previous paycheck, leaving you in a really tight spot.
Do your best to build some savings
You can expect Social Security to provide you with some retirement income -- perhaps even a fair amount of it. But don't make the mistake of neglecting your savings and counting on Social Security to cover the bulk of your retirement expenses.
Even if lawmakers manage to find a way to prevent a universal reduction in benefits, retiring mostly on Social Security alone will mean taking a major pay cut compared to your previous earnings. So rather than subject yourself to financial worries during retirement, do your best to sock money away in a dedicated savings plan.
You may have to start with small contributions and work your way up over time -- for example, start off by socking away $300 a month in an IRA or 401(k) plan, and then ramping up to $400 a month next year. But making that effort could lead to a lot more financial flexibility -- and happiness -- once your senior years arrive.
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