If you're considering retiring or making plans to leave the workforce in the future, it's imperative you have money outside of the income your Social Security benefits will provide.
Social Security benefits will undoubtedly be an important source of retirement income, but if you count on them to be your only source of funds, you're going to be in serious financial trouble. Here's why.
The typical Social Security benefit won't come close to covering your costs
For most beneficiaries, Social Security provides only a small portion of the income they need to cover costs.
In 2018, the most recent year for which data is available, the Bureau of Labor Statistics reported mean consumer spending among seniors 65 and over at $50,860 per year. In that same year, the average Social Security benefit was just $1,404 monthly. Social Security alone would provide an income of around $16,848 for the average American, leaving them $34,012 short of the amount necessary to cover costs if they spend what the typical senior does.
While it's true that Bureau of Labor Statistics data was based on consumer units, and its average consumer unit had 1.8 people in it, even taking 1.8 times the average Social Security benefit would still add up to just $30,326. So we're still talking about a shortfall of more than $20,000.
Seniors who spend close to the mean aren't exactly living large or splurging on travel, either. In fact, three big expenses -- housing, healthcare, and food -- account for over $30,000 of the $50,860 the typical retiree spends. That means Social Security wouldn't even be enough to cover these basics that every retiree needs to pay for.
This isn't a glitch in the system either. The reality is that Social Security isn't designed to be the only source of support seniors have. It's supposed to be part of a three-legged stool that includes pension benefits and savings. Unfortunately, with pensions uncommon (especially in the private sector), seniors are left with just their benefits and savings to support them -- and saving enough to fill the gap between what Social Security provides and retirees need isn't always easy.
Save and invest so you have income to supplement Social Security
If you don't want to find yourself more than $30,000 short of what you need to live in retirement, you need to save for your later years. You should set a retirement goal as soon as possible and begin working toward it ASAP as it's much easier to hit your target if you start saving early.
If you're already nearing retirement, you still have time to step up your savings and can take advantage of catch-up contributions to help you bank what you need. And if you're already in retirement and struggling to live on Social Security alone, you may want to take steps such as relocating to a low-cost living area to help your funds go further.
The important thing to realize, no matter your age, is that living on Social Security alone will be tough. So you'll want to try to avoid it or be prepared to sacrifice if you have no other choice but to make it work.