Social Security benefits are often the cornerstone of retirement funding in America, but there are three specific reasons why looking at the benefit program by itself to carry seniors through their retirement years may not be the best choice. This is according to a new column at The Motley Fool, penned by finance columnist and former college educator Christy Bieber.
The first reason this is the case rests simply on the size of the Social Security benefits themselves, she writes.
“The average benefit in 2022 is $1,661 [per month],” the column reads. “So unless you can live on $19,932 a year for every single cost – including healthcare, housing, food, transportation, and entertainment – you will face a huge shortfall if you get benefits close to the average.”
Granted, this figure goes up noticeably to $4,194 per month for those who elect to take their Social Security benefits later in life, at age 70. However, not all seniors have the financial flexibility to wait that long, not to mention that those who qualify for that figure would’ve had to have been “among the top 6% of earners in the country for at least 35 years,” the column explains.
Another major issue with complete reliance on Social Security is how much control beneficiaries really have over the program, the column says.
“Lawmakers could make changes to Social Security, such as pushing back the age when you can claim benefits or reducing the periodic increases meant to help keep pace with inflation,” the column reads. “If either of these things happened, your benefits could end up providing you less money than you expect and could make your cash shortfall even bigger.”
Because of the Social Security trust fund’s well-documented monetary shortfall – which could see it run out of money as soon as 2035 – beneficiaries will likely see a monthly reduction at that point, absent some kind of action from the federal government. Even then, benefit reductions would still be likely, the column reads.
“Benefits were reduced the last time major changes were made in 1983 when the program was amended to make it more financially solvent,” it says. “And that would probably happen again.”
Finally, upon retirement there might be limitations on a person’s ability to claim Social Security, presuming that is even what a certain person may want.
“If you don’t plan to claim Social Security right away or can’t do so, you won’t have these benefits as an income source for some of your retirement,” the column reads. “You’ll need plenty of money in the bank to support you during that time. For all these reasons, you should work aggressively to save a generous nest egg that will work in conjunction with Social Security and help make your retirement a secure one.”
Read the column at The Motley Fool.