Is Social Security Enough to Retire On?
June 22, 2020General Retirement
The average Social Security benefit is simply not enough for retirement and here's why.
Social Security was designed chiefly to act as a safety net for the elderly in retirement. And even though this Social Security has been serving as a lifeline for millions of retired Americans, it's faced lots of criticisms in recent years. While it was created to act as a safety net for millions of retirees, this "safety net" is now full of holes that have let millions of Americans fall through! Whether or not you fully depend or plan to depend on Social Security in your retirement, one thing is for sure: Social Security alone isn't and won't be enough to sustain retirees now or in the future. We have to admit that Social Security may seem safe but it's not enough to sufficiently cover even the most basic living needs.
Is Social Security enough to retire on? Unfortunately, not. If you're looking to maintain something similar to the lifestyle you had when working, you have to understand that Social Security alone will not be enough. You're almost certainly going to find yourself in a calamitous financial situation if you are entirely counting on Social Security benefits to be your solitary source of income as a senior. While the average Social Security benefit is about $1360 per month, this is probably insufficient to sustain a proper standard of living throughout retirement.
In this interesting article, we'll highlight some of the reasons why you shouldn't solely rely on Social Security benefits, how America found herself in this dire situation, and what you can do if Social Security is your only hope.
Table of contents
Reasons Why You Can't Sufficiently Live on Social Security
As Americans, we've always been told to save throughout our working lives. However, there are a couple of reasons why seniors cannot sufficiently live or depend on Social Security alone. If anything, it's of great importance to make sure that you save enough for retirement so that you don't have to solely rely on Social Security.
The Cost of Living is a lot higher
The average American senior can spend about $3,700 per month on routine expenses such as housing, food, and healthcare. On the other hand, the average Social Security benefit for most American seniors is about $1,360. So if you're looking to live a normal middle-class lifestyle in retirement, your Social Security benefit won't be enough even if you earn maximum monthly benefit, which is about $2,861.
With that in mind, you'll most certainly barely afford your routine expenses if your Social Security benefit is average. You may have to resort to low-cost living to make ends meet. For example, your average Social Security benefit can only cover your rent if you live in a single-bedroom apartment in many major U.S. cities.
There are Unanticipated Expenses that could lead to Calamity
When planning for retirement, we often factor in routine expenses such as food, housing, and healthcare. Unfortunately, the average Social Security benefit is insufficient to cover these basic routine expenses. Now, imagine what could happen if you find yourself with an unexpected expense!
While this may be hard to believe, almost half of all American seniors do not have anything set aside for unanticipated expenses or emergencies. You'll most likely fall into this group if you solely depend on Social Security benefits. And because emergencies do occur, you could find yourself in a disastrous situation as far as your finances are concerned. For example, what will you do if your car, which is perhaps your only mode of transport, breaks down? You could probably be unable to pay your bills, end up in debts, or even be left with no savings to fall back to.
You Maybe Be Unable To Afford Healthcare
Seniors generally have costly medical needs and could face harder times if they depend on Social Security benefits alone. Contrary to the popular myth, Medicare doesn't offer free medical care to seniors. Although Medicare covers a given portion, seniors still have to cover a huge portion of their healthcare needs, especially when it comes to prescription drugs.
According to healthcare statistics, American seniors account for about 34% of the entire healthcare spending. Again, each senior can spend about $19,000 per year on healthcare alone. Even though Medicare will pay for about 65% of seniors' medical expenses, the remaining expenses must be paid by the seniors. In other words, seniors aged 65 and above can spend an average of about $6,000 per year but may end up spending even more if their prescription drugs are taken into account.
So if you only rely on Social Security benefits, then the annual $6,000 medical costs could consume about 37% of your annual retirement income. This means that you'll be left with just about $10,000 to cover your other expenses such as rent, food, and clothing. Needless to say, this is very insufficient and will leave you struggling to make ends meet. Things could even be worse if you suffer from serious medical emergencies such as heart attack or stroke.
COLA Adjustments are consumed by Inflation
Keeping up with inflation when you're on a strict budget is almost impossible. The government is fully aware of this and that's why it came up with the annual Cost-of-Living Adjustments (COLA) to help Social Security beneficiaries protect their purchasing power from the rising inflations. But even with COLA, Social Security still isn't enough to keep up with the actual costs of living.
Generally speaking, COLA adjustments are meager and can't keep with the rising inflations. And with the decreasing power of the dollar coupled with the rising costs of living, Social Security benefits cannot be enough with or without COLA adjustments.
The Future of Social Security is Ambiguous
As we noted earlier, there are a lot of holes in the Social Security net. This has led to a lot of criticisms with the government and other stakeholders considering having it scraped. Add this to the fact that many senior Americans cannot sufficiently live on Social Security alone and there's a possibility that things could get worse.
It's been widely reported that Social Security's trust fund could be depleted by 2034 if things remain as they are. In other words, Social Security may only be able to pay 77% of the expected benefits and this is a recipe for big problems and disaster. Imagine saving your money for all your working years only to be told that your money isn't there when you retire!
One of the suggested ways to fix this shortfall is by increasing the retirement age. Whether or not this turns out to be true, many people will become skeptical of the Social Security system and could even avoid it altogether.
How Did We Get Here as a Country?
Social Security benefits constitute about 61% of seniors' beneficiaries. This means that more than 46 million senior Americans rely on Social Security to make a living. But even with that, the main problem with Social Security is that it's not being used as was intended.
When President Franklin D. Roosevelt and the Congress conceived Social Security in 1933, the program was meant to act as a safety net for elderly Americans who had no financial support. Today, many Americans are heavily relying on Social Security and that has become a major problem.
Again, many Americans have not been saving enough for retirement either as a result of their inability to save money for their futures or because of poor planning. While the working class has access to savings accounts such as 401(k), almost 40% of Americans do not have access to this program. And even though there are retirement accounts available outside work such as Roth IRA, many Americans have never been quite serious with saving for retirement.
What Can You Do if You Solely Rely on Social Security?
As we've explained above, living on Social Security alone can be quite challenging. Here are a couple of tips to use if you have no choice but to only rely on Social Security.
Generally, you can expect Social Security to pay you about 40% of your working days income if you're an average earner. But even with this and based on today's high living costs, many seniors will require a lot more than 40% of working-days earnings to not only maintain a decent lifestyle but also to keep up with the normal living expenses.
The best thing to do is to target about 70% or 80% of your pre retirement income to afford to live reasonably well. While you can do with about 50%, this will only work if you are willing and ready to lead a very frugal life. You can make it work but you have to sacrifice a lot. If you are ready to retire on $18,000 a year, then you are good to go. But if this seems like a financial struggle, then you have to plan accordingly and upgrade your savings and nest egg while you still can.
If living on about $18,000 a year makes you uncomfortable, you can ramp up your retirement savings. You can start by cutting your expenses and living modestly. You can also invest in various projects, start a business, invest in stocks and you may be in a much better position when the time to retire and enjoy the benefits of your hard work comes.
Delay Your Retirement and Your Social Security
You can either stay in your job longer or find a part-time job so that you don't have to rely on Social Security. In other words, you can continue working and postpone using your Social Security benefits.
This can be a good option if you're healthy and can continue working. But even if you're ailing and have other resources to live off, it could be beneficial to wait. Keep in mind that your monthly benefits will be 76% higher if you start receiving Social Security benefits at the age of 70 rather than at the age of 62.
One of the most important things to do if you're going to survive on Social Security is to avoid high-interest consumer debts such as credit cards. In other words, it's important to live debt-free by ensuring that you pay off your debts when you're still working.
You should also make sure that you've settled your mortgages when you're still working. Keep in mind that mortgages are often one of the biggest payments that you can make monthly, so it's only vital to avoid a mortgage when in retirement. By doing this, you'll have much better flexibility with your cash flow just in case an emergency arises. And even if you retire with a mortgage, make sure that it's manageable. In short, don't deplete your savings just to pay off the house.
A good option is to rent out the house and use it to pay off the mortgage. You can also downsize by moving to a less expensive locale or downsizing to a smaller place where the cost of living is much lower and affordable.
Make Sure that You Pay Your Taxes
No matter what you're planning as far as your Social Security benefits are concerned, do not forget to include taxes into the equation. While most states do not tax Social Security benefits, you should make sure that you do not fail to pay any money that you owe Uncle Sam.
Take Advantage of Benefit Programs
If you're living modestly and just surviving on Social Security alone, you can qualify for federal or state programs. For instance, you can apply for Extra Help that's designed to help Medicare beneficiaries with limited sources of income. This program can give you $4,000 and this can help reduce your medical costs.
You can also utilize several other freebies such as parks, local museums, and libraries as a way of accessing free entertainment. If you're living in a University town, you can find out whether the institution provides free cultural programs and lectures.
For seniors who depend entirely on Social Security, each passing year means surviving on much less. This is because depending entirely on Social Security in retirement is almost impossible. The first thing to do is to take charge of your retirement plan. The truth is, Social Security is designed to take care of seniors after retirement but it won't be enough. The best thing is to find additional sources of income and your golden years might be just that: golden.
About THE AUTHOR
With multiple family members currently in senior living facilities, David is in the trenches every week, learning the ins and outs of nursing homes, assisted living, memory care, and general senior living.Read more about David Bolton
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We love planning for retirement. It's somewhat of a hobby, and we want to share what we've learned with you. Over the years we've found the best ways to live, how to travel, take on new hobbies and give back. Happiness in retirement is the main goal, and having the right information allows us (and you) to achieve that.