Personal Finance

3 Reasons It's Dangerous to Retire on Social Security Alone

Maurie Backman

Published: January 26, 2025 12:26 pm

Although millions of older Americans rely heavily on Social Security to make ends meet in retirement, an estimated 40% depend solely on those monthly benefits, according to the National Institute on Retirement Security. That’s troubling, since there’s a lot that can go wrong for those who retire without any other income at their disposal. And if retiring on just Social Security is your plan for retirement, here’s why you may want to rethink it.

1. Your monthly benefit may not go as far as you think it will

If you earn an average income, you can expect Social Security to replace about 40% of your pre-retirement wages based on the level of benefits being paid today. But when you think about it, that means you’re looking at a 60% pay cut. And even if you’re able to trim your spending in retirement, you may not be able to slash it by more than half.

As a general rule of thumb, retirees are advised to anticipate needing 70% to 80% of their former income in retirement. A financial advisor can sit down with you and help you figure out your precise income needs (or at least get close), but that’s a general guideline. But clearly, retiring on Social Security alone won’t get you anywhere close.

If you don’t manage to save or find another way to generate income, you might have to make some serious spending cuts once you stop working. So if possible, you may want to delay retirement a bit to build savings, or otherwise set yourself up with part-time work to supplement your Social Security.

2. Sweeping benefit cuts are possible in the not-so-distant future

It’s not just a rumor that Social Security is facing a financial shortfall. In the coming years, the program will face a double whammy — a mass exodus of older workers from the labor force that cuts its payroll tax revenue, and an uptick in seniors who begin filing benefit claims.

Social Security has trust funds it can tap to keep up with scheduled benefits for roughly the next decade, as per the latest Trustees Report. But once those trust funds are depleted, benefit cuts will be an option unless lawmakers intervene.

Now it’s worth noting that Social Security has never been forced to actually go through with benefit cuts in the past. But because it’s possible now, it’s unwise to fall back solely on Social Security for retirement income.

3. Social Security’s annual cost-of-living adjustments often fail to keep up with inflation

Each year, Social Security benefits are eligible for an annual cost-of-living adjustment (COLA). COLAs are pegged to inflation, but they’re based on past inflation, not future projections. What often happens is that a COLA is announced late in the year to take effect the following year. Only once that COLA hits seniors’ paychecks, inflation has already crept upward.

And even when that doesn’t happen, because of a flawed way of calculating COLAs, they don’t always result in more buying power for retirees, even when economic conditions lend to a broad slowdown in inflation. For this reason, it’s best to have separate retirement savings that are invested in a manner that can outpace inflation, or at least keep up with it.