Social Security is a crucial source of income for many retirees. And many people’s retirement plans center on those benefits specifically.
But while it’s one thing to rely on Social Security for income in retirement, it’s another thing to base your entire income plan around it. And once you dig deeper into the program, you might realize why relying too heavily on Social Security in retirement is a problem.
Here are a few eye-opening stats about Social Security that may make you rethink your approach to retirement savings.
The average retired-worker benefit is $2,086 a month
You might think seniors on Social Security are collecting somewhere in the ballpark of $4,000 to $5,000 a month. But while some seniors may be eligible for a benefit that large, the average retirement benefit from Social Security is only about $2,086. That’s a little more than $25,000 annually.
To see how that compares to the costs retired Americans face, in 2024, Americans ages 65 and over spent an average of $61,432 on living costs, according to data from the Federal Reserve. And if anything, costs have only increased over the past couple of years rather than decreased.
If we assume typical spending among retirees is $61,432, it means the average Social Security benefit today can only cover about 40% of the average senior’s needs. That’s a notable shortfall.
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Social Security replaces about 40% of earnings for an average worker
You might assume that the Social Security benefit you’re eligible for in retirement is meant to match the paycheck you collected during your career. But you should know that if you bring home an average paycheck, your Social Security benefits might only replace about 40% of your pre-retirement wages.
Think about the things you spend money on today. Even if you were to strip out non-essentials like cable, streaming services, leisure, and restaurant food, you’d probably still need more than 40% of your paycheck to cover your essential needs like housing, transportation, food, and utilities.
If you retire on only Social Security, you may not even have a way to pay for your basic expenses, let alone have money for anything extra.
Benefits have lost 13.7% of their buying power since 2016
Social Security benefits are eligible for an automatic cost-of-living adjustment, or COLA, each year, that’s tied to inflation. The purpose of Social Security COLAs is to give benefits a boost to match inflation so that they don’t lose out on buying power over time.
But data from the Senior Citizens League finds that Social Security benefits have actually lost 13.7% of their purchasing power over the past 10 years due to insufficient COLAs. The problem stems from the fact that COLAs are not based on senior-specific spending. But until a change is made, those annual boosts could continue to fall short, making it even harder for retirees to get by on Social Security alone.
24.6 million seniors get all of their retirement income from Social Security
Even though Social Security wasn’t meant to be seniors’ sole source of income in retirement, many older Americans don’t have other income streams to fall back on. The Senior Citizens League says that 24.6 million seniors get 100% of their retirement income from Social Security. That means 44% of U.S. retirees rely entirely on Social Security for their retirement income.
Part of the reason some people may not have other income is that it’s just too hard to save. But for others, it may boil down to misinformation about Social Security.
If you expect, for example, that those benefits will replace your entire paycheck, you may not be motivated to save for retirement on your own. So it’s important to know the truth about how those benefits work, and to get an estimate of your monthly benefit by creating an account on SSA.gov ahead of retirement so you’re aware of what to expect.
Bottom line
Social Security is one of the most important benefits for seniors. But if you attempt to retire on Social Security alone, you may end up struggling financially during your senior years instead of enjoying retirement to the fullest.
That’s why it’s so important to do what you can to build retirement savings. That could mean contributing to an IRA or 401(k) every month, investing your savings in assets like stocks that typically tend to grow over time, and maintaining a diversified portfolio.
Just as importantly, give yourself as much time as possible to save and invest for retirement. The sooner you start funding an IRA or 401(k), the more your money will be able to compound. That could lead to a sizable retirement nest egg that, coupled with Social Security, helps make your retirement years more financially comfortable.
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Author Details
Maurie Backman
Most retirees will make their Social Security claiming decision exactly once, which is why Maurie Backman has spent more than 20 years helping them understand it. She covers benefit calculations, COLA forecasts, and the policy changes that quietly reshape what retirees receive each month. Her work has appeared in Kiplinger, The Motley Fool, 24/7 Wall St., Bankrate, and U.S. News & World Report.
