Social Security: 3 Reasons Your Benefits Might Disappoint You

Personal Finance

Published: February 1, 2025 11:50 am

Key Points

Many seniors rely heavily on Social Security — and end up regretting that.
Your benefits might replace less of your pre-retirement income than expected.
Your cost-of-living adjustments might fall short, and you could see your benefits reduced if you hold down a job.
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A lot of people reach the end of their careers without money saved for retirement. And folks in this boat are typically left to depend on Social Security alone.

That’s something you really don’t want to do, though. You might think your benefits will be enough to see you through retirement. But here are three reasons they may end up disappointing you.

1. They won’t replace most of your income

It’s a big misconception that the Social Security payments you get in retirement are designed to take the place of your former paycheck in full. In reality, average earners can expect Social Security to replace about 40% of their pre-retirement wages — assuming the program isn’t forced to cut benefits, which isn’t a given.

But there are a couple of issues here. First, if you’re an above-average earner, it means Social Security will likely replace less than 40% of the wages you’re using to living on. And also, while many people do see their costs go down in retirement, there’s a difference between spending 20% or 30% less than what you used to versus cutting your spending by 60%.

Remember, a lot of the expenses you incur during your working years are costs that will still exist in retirement. You’ll still need a roof over your head, transportation, electricity, food, and medication. So if you go into retirement thinking you’ll be just fine on Social Security alone, you may end up in a tough spot.

2. Their cost-of-living adjustments aren’t always effective

Social Security benefits are eligible for an annual cost-of-living adjustment, or COLA. COLAs are automatic and are tied to inflation so that if there’s a year when living costs rise substantially, benefits get a large boost. And on the flipside, if there’s a year when inflation drops or doesn’t increase at all, benefits don’t go up.

The problem, though, is that Social Security COLAs aren’t known to do a good job of keeping up with inflation in practice, even though they’re supposed to do that in theory. A big reason is that those COLAs are based on an index called the Consumer Price Index for Urban Wage Earners and Clerical Workers. But because Social Security recipients are typically not urban wage earners and clerical workers — they’re retirees — that index doesn’t do a great job of capturing the costs beneficiaries tend to face.

The result? COLAs that don’t do Social Security recipients a whole lot of good.

3. They may be withheld if you earn too much money

You might think you’ll kick off retirement without savings but manage just fine on a combination of Social Security and earnings from a part-time job. But do know that if you earn too much, your Social Security payments may be withheld.

This rule doesn’t apply once you’ve reached full retirement age. At that point, you can earn any amount of money without temporarily reducing your benefits.

But otherwise, you’ll be subject to an earnings threshold that changes every year. Exceeding that threshold means having a portion of your monthly benefits withheld, which could mess with your budget and financial plans.

That’s why it’s really best to go into retirement with some amount of savings. That way, if Social Security lets you down, you’ll have money to fall back on.