Why Social Security Won’t Cover Retirement

One of the most financially disastrous mistakes you can make is to assume that Social Security will cover your retirement.  This is particularly dangerous because if you do not realize that mistake early on, it may be too late.

While Social Security does play an important role in retirement plans for millions of Americans, the odds are high that it will not be enough to fund your retirement by itself.  Below are three key reasons why:

1. Social Security is not designed to be your only source of retirement income.  Social Security’s benefit calculation is not designed to provide you much more than a buffer against abject poverty in your old age. 
2. Social Security’s Trust Funds are emptying, which may cause benefits to decrease by 23%.  The $1,328 that a typical retiree receives today would become the inflation-adjusted equivalent of $1,022 in 2033, once the Trust Funds empty.  Even if Congress tries to remedy the problem, this has generally consisted of some combination of tax hikes or benefit cuts.
3. The demographic tides are shifting against Social Security’s funding model.  Social Security is a “pay as you go” system in which your taxes pay for the current recipient’s benefits.  This works fairly well so long as there are enough people paying into the system.  However, as the population ages and a smaller portion participate in the workforce, Social Security’s funding is becoming stretched. 

Regardless of what happens to Social Security in the future, the reality has been that if you want a comfortable retirement, you need to save above and beyond.

See Chuck Saletta, 3 Reasons Social Security Won’t Cover Your Retirement, The Motley Fool, Jan. 24, 2015.