Many people rely on Social Security alone to fund their retirement. Even those who have separate retirement funds still make Social Security a main factor in their post-work income.

Having this mindset can be very dangerous, though, and may result in you not having enough money in retirement to pay for your basic needs. Here are some reasons why you shouldn’t depend on Social Security alone.

You’ll Take a ‘Pay Cut’

Many people mistakenly think that Social Security benefits are going to replace a large chunk of the money they’ll no longer be receiving through a paycheck. Unfortunately, that’s just not true.

On average, Social Security benefits provide roughly 40% of the paycheck you received before you retired. Even if you intend to live a lifestyle that’s much humbler in retirement, it still may be challenging to spend that much less than you’re used to.

While some of your monthly expenses such as travel and a mortgage might decrease and/or disappear in retirement, other expenses such as health care are likely to rise — and significantly.

The Benefits May Go Down

For 2022, the average person will receive $1,657 per month from Social Security benefits. Over time, though, it’s possible that cuts could be made to everyone who receives Social Security.

For many years now, it’s been projected that the Social Security program would run dry of funds. While the program has been using trust funds it has to overcome the shortfall it is experiencing, they’re expected to dry up by 2034.

What happens at that point is anybody’s guess. There’s no guarantee that Social Security benefits will be cut as a result, but there’s also no guarantee they won’t be cut.

So, if you’re factoring in a certain amount of Social Security benefits in retirement, realize that the number isn’t guaranteed.

Benefits Aren’t Keeping Up with Inflation

Every year, the Social Security Administration makes adjustments to benefit payouts based on the increased cost of living. However, these COLAs, or cost of living adjustments, aren’t keeping pace with the actual increased cost of living.

The COLAs were put in place to make sure that Social Security benefits kept pace with the inflation rate. But, that simply isn’t happening. In fact, since 2000, the value of Social Security benefits has dropped by about 30%. In other words, people are losing significant value with their Social Security benefits every year.

Beneficiaries are going to receive a 5.9% COLA increase in 2022, which will be the largest that’s happened in more than 40 years. However, despite this massive percentage increase, it still may not be enough to keep up with the actual inflation rate most people are experiencing on a day-to-day basis.

This problem sheds even more light on why you can’t rely on Social Security benefits alone in retirement. Despite the payouts increasing on an annual basis, they simply aren’t keeping up with the rising cost of goods.

This means that you may think you’re well-prepared on paper, only to find out in reality that you can’t afford your basic necessities with Social Security benefits alone.

How to Not Rely on Social Security So Much

While it’s likely that Social Security benefits will be around in some shape or form, exactly what level of benefits you’ll receive is up in the air. And even if benefits remain stable, it’s still not a great idea to overly rely on Social Security for retirement.

There are two basic ways that you can do this. First, try to plan as best as you can to put money aside into a retirement account. This can be either be an employer-sponsored 401(k), an IRA, or a combination of both.

Remember that the earlier you start saving, the better. That being said, it’s never too late to start saving for retirement. Every little bit that you can put away yourself will help you rely less on Social Security benefits.

In addition, work on reducing your monthly expenses as much as possible. Pay down your mortgage early if you can, and avoid extending the years on your mortgage through refinancing.

As you begin to approach retirement, start to shave off other monthly costs in preparation for a humbler post-work lifestyle. This may mean eating out less, spending less on clothing and entertainment, and more.

By making these preparations, you’ll be in a better position to avoid becoming overly reliant on Social Security benefits in retirement.

Disclosures

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.