Social Security can make or break retirement for many older adults, so the better you can prepare for your senior years, the better off you’ll be.
However, a recent study shows that many workers have unrealistic expectations about the extent to which they will be dependent on Social Security after retirement. While some workers expect their benefits to cover most or all of their expenses once they retire, surprisingly the most pressing problem is quite the opposite.
The mistake that millions of employees may make
It can be dangerous to expect Social Security to cover most or all of your retirement costs, but it can be just as risky to assume that you won’t rely heavily on your benefits.
A 2024 Gallup poll asked workers and current retirees about the role their benefits play in their retirement plans. Among non-retired adults, only 35% said they expect Social Security to be a major source of income once they retire. As many as 60% of current retirees say their benefits are an important source of income.
In other words, many workers may underestimate how important Social Security will be in retirement, and millions will end up relying on their benefits more than they expected.
That may not sound like a big problem at first glance. After all, it is normal to rely on Social Security to some extent after retirement. However, the average retiree only receives about $1,900 per month in benefits, so if your savings run out sooner than expected and you’re relying primarily on your benefits, that money probably won’t go far.
Social Security may be even less reliable in the future
Retirement benefits were only intended to replace about 40% of pre-retirement income, but given the program’s financial challenges in recent years, they may not even go that far in the future. Social Security is currently facing a cash shortage because expenses exceed revenues. Payroll taxes and other revenue sources are currently not enough to fully pay out benefits, so the Social Security Administration (SSA) has withdrawn money from its trust funds to avoid cuts.
However, according to the latest estimates from the SSA Board of Trustees, both trust funds are expected to run out by 2035. At that point, the SSA will only have enough money coming in to pay out about 83% of the planned benefits. If nothing happens between now and 2035, benefits could be cut by about 17%.
In addition, Social Security is struggling to keep up with inflation. Since 2010 alone, benefits have lost about 20% of their purchasing power, according to a 2024 report from advocacy group The Senior Citizens League.
Even with annual cost-of-living adjustments (COLAs), a whopping 81% of retirees say these adjustments help “very little” or nothing at all with critical living costs, according to a 2024 survey from The Motley Fool. If benefits continue to lose purchasing power and COLAs continue to disappoint, it will only become more difficult to survive after Social Security retirement.
What you can do now to prepare
Perhaps the best thing you can do now is to look realistically at your future costs and how much you need in savings to cover them. Many workers think they won’t rely on their benefits much after retirement, but the majority of retirees actually rely heavily on their monthly checks. Retirement is more expensive than many people realize, and some retirees can easily spend $1 million or more in their senior years.
Exactly how much you need to save for retirement depends on many factors, such as the cost of living in your area, your life expectancy and your health care needs. But the more accurately you can map out your future expenses, the better idea you will have of how much savings you need.
This does not necessarily mean that you can no longer rely on social security after your retirement. But given the shaky nature of the program, it may be wise to assume you’ll need more savings than expected to enjoy your retirement more comfortably.
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This 1 Social Security Statistic Suggests Millions of Workers Could Be in Trouble was originally published by The Motley Fool
