Social Security is a valuable program that provides a financial safety net for millions of Americans in their retirement years. However, relying solely on Social Security for retirement income can be risky. Here are some of the risks associated with relying solely on Social Security for retirement income:
- Social Security Benefits May Not Be Enough
Social Security benefits are designed to replace only a portion of a worker’s pre-retirement income. The Social Security Administration estimates that benefits will replace about 40% of pre-retirement income for the average worker. This means that if your pre-retirement income was $50,000 per year, you can expect to receive about $20,000 per year in Social Security benefits. For many people, this may not be enough to live on in retirement, especially if they have significant expenses, such as medical bills or long-term care costs.
- Social Security May Not Be Around Forever
Social Security is funded by payroll taxes paid by current workers, which are used to pay benefits to current retirees. As the population ages and the number of retirees grows, there may not be enough workers paying into the system to support the benefits promised to retirees. In fact, the Social Security Administration projects that the trust fund that supports the program will be exhausted by 2033. While the program is unlikely to disappear entirely, it is possible that benefits could be reduced in the future.
- Social Security Benefits May Be Taxed
If your retirement income is high enough, your Social Security benefits may be subject to federal income taxes. This can reduce the amount of income you have available to cover your expenses in retirement. For example, if you are married filing jointly and your combined income (including half of your Social Security benefits) is more than $34,000, up to 85% of your Social Security benefits may be subject to federal income taxes.
- Social Security May Not Keep Up with Inflation
Social Security benefits are adjusted each year to keep up with inflation, but the amount of the adjustment may not be enough to keep pace with the rising cost of living. This means that the purchasing power of your Social Security benefits may decrease over time, making it more difficult to cover your expenses in retirement.
- Social Security Does Not Provide Long-Term Care Coverage
Long-term care, such as nursing home care or in-home care, can be a significant expense for retirees. Social Security does not provide coverage for long-term care, so retirees who need this type of care may need to rely on other sources of income, such as personal savings or Medicaid.
- Social Security Benefits May Be Reduced if You Work in Retirement
If you choose to continue working in retirement, your Social Security benefits may be reduced if you earn too much income. This is known as the earnings test. For example, if you are under full retirement age for the entire year and earn more than $18,960 in 2021, your benefits will be reduced by $1 for every $2 you earn over the limit.
What Can You Do?
Consider building a low risk high reward home business. I remember my grandpa repairing bicycles and bring them to the swap meet for extra income. He also would sell other items he picked up at yard sales, repaired and resold them at the swap meet. I don’t know if they need the money or he just wanted to stay busy but I do know they were on a fixed income with Social Security. I admire his work ethic but today there are other options you can explore. One that I recommend is a home based business where you can work the hours you want from anywhere. Check it out here and watch the short video. Retirement Options Video
In conclusion, relying solely on Social Security for retirement income can be risky. While Social Security provides a valuable safety net for retirees, it may not provide enough income to cover all of your expenses in retirement. In addition, the program may not be around forever, benefits may be taxed, and they may not keep up with inflation. Retirees who need long-term care may need to rely on other sources of income, and working in retirement may result in a reduction in Social Security benefits. To mitigate these risks, it is important to have other sources of retirement income, such as personal savings, pensions, or retirement accounts. Working with a financial advisor can help you create a retirement plan that takes into account your unique circumstances and helps you achieve your retirement goals.
Thanks for reading!