Personal Finance

3 Harsh Social Security Truths to Come to Terms With

Christy Bieber

Published: January 28, 2025 10:10 am

Social Security is an important income source for seniors and it’s money that most people look forward to getting in retirement. After all, you pay into the system for your whole working life so you expect your benefits to be there to provide a comfortable life when you are finally ready to leave work.

Unfortunately, you don’t want to count on Social Security to do more than it should because there are issues with the benefits program that you may not be aware of. To ensure you’re not caught off-guard, here are three harsh Social Security truths you should come to terms with right now so you can be ready for the reality of what this retirement program will do for you. 

1. Social Security is not enough to live on 

The first sad reality every future retiree must be aware of is that Social Security is not going to provide you with the income you need to have a comfortable retirement and maintain the living standard you established while you were still getting paychecks. 

Your Social Security benefits are designed to work with a pension and savings to support you, so they replace only around 40% of pre-retirement income. Living on 60% less than what you were earning simply is not going to cut it. In fact, the average Social Security benefit in January of 2025 is $1,976.  That would provide an annual income of only $23,712, which is not nearly enough for most people. 

Coming to terms with this reality sooner rather than later is crucial because knowing how little Social Security actually does to provide security during your senior years can help motivate you to save and invest so you aren’t a broke retiree.

2. More people are taxed on benefits each year 

There’s another sad reality to face. There’s a very good chance you are going to be taxed on at least part of your Social Security payments. It may seem crazy to be taxed on retirement income that you earned by paying into the system. But it’s the law of the land.

Specifically, the IRS taxes benefits once provisional income exceeds $25,000 for single tax filers or $32,000 for married joint filers. As soon as your income goes above this level, you’re taxed on up to 50% of your benefits amount. This is provisional income, though, which is half of Social Security income, all taxable income, and some non-taxable income. For those who have provisional incomes above $34,000 for single tax filers or above $44,000 for married joint filers, you could be taxed on up to 85% of your benefits. 

These thresholds at which benefits become taxable do not increase over time. They are not indexed to inflation, unlike most other provisions in the Social Security benefits program. The problem this creates is that more people are subject to the taxes each year. While just 10% of retirees were originally taxed on benefits when these taxes were introduced, it’s up to close to half now and increasing each year as retiree income goes up over time.

If you lose a portion of benefits to the government, you have even less to spend when your payments already weren’t enough. You must be prepared for this reality and account for it when you assess your spending and income needs. 

3. Benefits are losing buying power

Finally, there’s another serious issue that you should come to terms with. Social Security benefits are losing buying power over time.

This should not happen because Cost of Living Adjustments (COLAs) are built into the program and occur each year when a consumer price index shows that the cost of a basket of goods and services has gone up.

The problem is that the consumer price index used to determine if retirees need more money is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The basket of goods and services these urban wage earners and clerical workers use is different from what seniors are spending their money on. As a result, it underestimates the inflation retirees actually experience and it has resulted in benefits losing 20% of their value since 2010. That’s according to the Senior Citizen’s League, which says the average retiree is being shorted about $4,442.80 per year. 

If the real value of your benefits declines over time, you’ll have to be prepared to supplement Social Security more with savings late in retirement — which is exactly when your account balance may be dwindling. Maintaining a safe withdrawal rate is especially critical given this Social Security reality. 

By recognizing these harsh truths about Social Security, you can ensure you have a realistic understanding of how it will help you and can prepare for its limitations by providing additional funds for yourself. It’s the only way to ensure a secure future.