12 to 15 Percent of Retirees Overly Rely on Social Security; Here’s The Problem With That

If you’re someone who’s working full-time with a good number of years left until retirement, you may be wondering what role Social Security will play in your golden years. After all, with all that talk of benefit cuts, you may be worried that Social Security won’t even be around once you’re old enough to file for it.

The good news is that Social Security is not going away. And even benefit cuts may not happen, since lawmakers have solutions they can look at to prevent them.

However, it’s important to not rely too heavily on Social Security for income later in life — especially since a good number of current retirees make that big mistake today.

A scary number of retirees overly rely on Social Security

The Social Security Administration reports that among beneficiaries ages 65 and older, 12% of men and 15% of women rely on their monthly checks for 90% or more of their income. But that’s a problem.

See, you can expect Social Security to replace about 40% of your pre-retirement income if two things hold true — that you’re an average earner, and that benefits aren’t broadly cut in the future. Most retirees, however, need more like 70% to 80% of their former income to maintain a comfortable lifestyle.

Now let’s say you’re someone who will be happy living on 70% of your pre-retirement paycheck. And let’s say Social Security is able to take the place of 40% of that. This means you’ll still need other income to bridge that gap. And if Social Security ends up constituting 90% or more of your retirement income, you could end up in a seriously bad situation.

Make sure to have income outside of Social Security

Since it’s not a good idea to try to live on Social Security alone in retirement, you should try to make sure you have other income streams to supplement those benefits. Some of those options could include:

• A CD ladder, which could make sense if interest rates remain strong
• A municipal bond ladder, which gives you access to income that’s guaranteed to be tax-free at the federal level
• A portfolio of dividend stocks and ETFs for reasonably reliable income (provided you choose the right companies to invest in)
• A portfolio of REITs, or real estate investment trusts, which commonly pay very strong dividends
• An annuity, which pays you guaranteed income for the rest of your life

Another option, of course, is to work during retirement. But after a long career, that may not be something you want. And it doesn’t have to be.

With the right game plan, you can set yourself up to make retirement a period of life that’s yours to enjoy to the fullest without having to worry about work. That plan should start, however, with a good understanding of what to expect out of Social Security.

Once you realize how much you ought to rely on those benefits for retirement income, you can look at ways to supplement your Social Security and set yourself up with enough money to not have to worry.