Social Security is not intended to be the sole source of income for retirees, or even the biggest source. But a lot of people depend on it for a large percentage of their retirement income — and that’s a troubling trend.
As Motley Fool reported, many financial experts recommend that retirees follow the 80% rule in retirement, meaning you should be able to replace 80% of your last working year’s income in retirement to maintain your lifestyle.
If you earned $100,000 in your last year working, for example, you would aim for $80,000 a year in retirement. If you earned $50,000 in your last working year, then you would aim for $40,000 a year in retirement.
The problem with most Social Security checks is that they don’t come close to either of those figures. The average Social Security benefit for retirees is $1,785.94 a month as of April 2023, according to the Social Security Administration. Over the course of a year, that adds up to only $21,431.
To put the latter number in context, the poverty line for a household of two in the United States is $19,720 a year, according to data from the U.S. Department of Health and Human Services. For a household of one it’s $14,580 a year. The average Social Security income is only about one-third above the poverty level for a household of one, and less than $2,000 above the yearly poverty level for a household of two.
Even the maximum Social Security benefit for those at full retirement age — $3,627 a month, according to Motley Fool — only adds up to $43,524 a year. That’s well below the nation’s median annual income of about $57,000, based on first quarter 2023 data from the U.S. Bureau of Labor Statistics.
Given those numbers, it’s no wonder that relying on Social Security alone is all but impossible for most Americans. And yet Social Security is the largest source of income for most beneficiaries, according to an April 2023 report from the Center on Budget and Policy Priorities (CBPP).
For four in 10 beneficiaries, Social Security provided at least 50% of their income as of 2015, the latest year data are available. It provided at least 90% of income for one in seven beneficiaries, the CBPP said.
The vast majority of Americans understand that Social Security cannot be the only or even main source of retirement income.
As GOBankingRates previously reported, nearly nine in 10 (88%) Americans say it is “critical” to have another source of guaranteed income beyond Social Security benefits in order to retire comfortably, according to a recent survey from Allianz Life Insurance Company of North America. Roughly three-quarters (74%) say they can’t count on Social Security benefits when planning their retirement income.
That’s why it’s important to build a retirement plan that includes contributing to 401(k)s, IRAs and other retirement accounts, experts say.
“Social Security benefits are often the backbone of a retirement strategy but it cannot be your entire strategy,” Kelly LaVigne, Allianz’s vice president of consumer insights, said in a press release. “A strong retirement strategy will ensure you have enough guaranteed income to cover your essential expenses. That guaranteed income can come from Social Security benefits along with other investments and protection products such as annuities.”
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This article originally appeared on GOBankingRates.com: Social Security As Your Only Source of Income in Retirement Is a Recipe for Disaster, According to Experts