Approximately 10% of retirees depend on Social Security for 90% or more of their income, receiving an average monthly benefit of $1,918 as of June 2024. This indicates that individuals relying solely on Social Security are living on an annual income of slightly over $23,000. While couples may receive a higher amount, many individuals find that their Social Security benefits are insufficient.
While I anticipate gaining certain advantages upon my retirement in a couple of decades, I view Social Security as merely an additional source of income to complement my other funds. I have decided on this approach for three main reasons rather than relying solely on Social Security for financial support during my retirement years.
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The original purpose of Social Security was not to fully cover all of your expenses.
Income provided to individuals who are retired or disabled, funded by contributions from workers and employers. Social Security benefits are intended to replace around 40% of a typical worker’s income before retirement. Those with lower incomes may receive a bit more, while those with higher incomes may receive less. However, relying solely on Social Security is highly improbable to sustain your present lifestyle during retirement.
If you are solely dependent on Social Security with no other alternatives, your standard of living may be negatively impacted. Additional benefits from other family members who also receive Social Security could help alleviate this to some extent. However, there is a possibility that you may still face financial difficulties.
The purchasing power of Social Security is decreasing.
According to The Senior Citizens League (TSCL), Social Security has experienced a 20% decrease in its purchasing power from 2010 to now. This indicates that in 2024, you would require $1 to purchase what $0.80 could buy in 2010. Although the difference may appear insignificant, it accumulates significantly over all your expenses in a year. TSCL suggests that current Social Security payments would need to increase by $370 monthly to regain the lost purchasing power.
Regrettably, this pattern is not expected to change. Therefore, it is probable that Social Security will provide even less financial support for your expenses in the future compared to the present.
The future of Social Security is not guaranteed.
According to the most recent predictions, The Social Security trust funds are projected to run out by the year 2035. If this occurs, the program may experience reductions in its benefits. Nevertheless, it is probable that the government will step in and discover a solution to enhance the program’s funding prior to this occurrence.
We are currently unaware of the potential outcome, which complicates the ability to forecast the extent of Social Security’s sustainability in the coming years. This uncertainty is particularly challenging for younger workers who may not enroll in the program until after 2035.
The activity I am engaging in as an alternative
I am focusing on saving for my retirement as a top priority, aiming to use these funds to cover most, if not all, of my living expenses during retirement. I find this approach appealing because it allows me to have more influence over my retirement income and provides a level of protection against potential reductions in Social Security benefits or changes in purchasing power.
The majority of my money is tied up in retirement accounts, which offer tax benefits and allow me to grow my purchasing ability in the long run. Additionally, I have some funds in a taxable brokerage account, which do not incur the 10% penalty for early withdrawals before the age of 59 1/2 that retirement accounts do. This gives me the flexibility to access these funds if I choose to retire in my 50s.
I realize that some individuals may not have the financial capacity to save a significant amount for their retirement, causing them to rely heavily on Social Security. However, there could be additional alternatives available to enhance your benefits.
If you are in good health and capable of working, you may want to explore part-time job opportunities during your retirement. Another option could be to postpone your retirement slightly to have more time to build up savings. Additionally, you could investigate if you are eligible for alternative government assistance programs. Additional financial assistance for individuals with limited income and resources. This is a regular payment that is offered to individuals who are blind or disabled, as well as elderly individuals with low incomes.
Having several ways to fund your retirement Although Social Security is beneficial, it is not guaranteed, and today’s workers can still rely on receiving some benefits from the program in the future. However, it is advisable to anticipate that these benefits may only cover approximately 40% or less of your retirement costs. It is important to be prepared to adjust your Social Security plan in case there are changes made to the program by the government.
