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3 Reasons You Can’t Live on Social Security Alone | Personal Finance







3 Reasons You Can't Live on Social Security Alone

As you think ahead to retirement, you most likely envision Social Security as an important support source. And, indeed, many retirees do end up relying on these government benefits to provide a large part of their take-home earnings.

But while you can count on Social Security to be there for you throughout your retirement, you shouldn’t expect to be able to live on these benefits alone. There are three important reasons why.

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1. Benefits are only designed to replace 40% of preretirement income

The single biggest reason you can’t live on Social Security alone is that you aren’t meant to.

See, there’s a Social Security benefits formula that determines the amount of money you’ll receive. It’s based on average earnings in your 35 highest-earning years. You get benefits equal to a percentage of those earnings. Based on the way the formula is designed, you’re supposed to get around 40% of what you were earning before retirement.

Of course, this means that if you tried to rely solely on Social Security, you’d end up taking a 60% pay cut upon leaving the workforce. The simple fact is, even in retirement, most people can’t survive on just 40% of what they’re used to bringing home because the necessities cost more than that amount.


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