Personal FinanceLane V. Erickson / Shutterstock.comMaurie Backman
You could end up cash-strapped if you’re limited to just your monthly benefits.
Benefits may be cut if lawmakers don’t fix Social Security’s finances.
You may find that the program’s cost-of-living adjustments fail you.
What’s a realistic retirement budget? It depends. Click here to talk to a professional today and learn more (Sponsor)
Although millions of older Americans rely heavily on Social Security to make ends meet in retirement, an estimated 40% depend solely on those monthly benefits, according to the National Institute on Retirement Security. That’s troubling, since there’s a lot that can go wrong for those who retire without any other income at their disposal. And if retiring on just Social Security is your plan for retirement, here’s why you may want to rethink it.1. Your monthly benefit may not go as far as you think it willIf you earn an average income, you can expect Social Security to replace about 40% of your pre-retirement wages based on the level of benefits being paid today. But when you think about it, that means you’re looking at a 60% pay cut. And even if you’re able to trim your spending in retirement, you may not be able to slash it by more than half.As a general rule of thumb, retirees are advised to anticipate needing 70% to 80% of their former income in retirement. A financial advisor can sit down with you and help you figure out your precise income needs (or at least get close), but that’s a general guideline. But clearly, retiring on Social Security alone won’t get you anywhere close.If you don’t manage to save or find another way to generate income, you might have to make some serious spending cuts once you stop working. So if possible, you may want to delay retirement a bit to build savings, or otherwise set yourself up with part-time work to supplement your Social Security.2. Sweeping benefit cuts are possible in the not-so-distant futureIt’s not just a rumor that Social Security is facing a financial shortfall. In the coming years, the program will face a double whammy — a mass exodus of older workers from the labor force that cuts its payroll tax revenue, and an uptick in seniors who begin filing benefit claims.Social Security has trust funds it can tap to keep up with scheduled benefits for roughly the next decade, as per the latest Trustees Report. But once those trust funds are depleted, benefit cuts will be an option unless lawmakers intervene.Now it’s worth noting that Social Security has never been forced to actually go through with benefit cuts in the past. But because it’s possible now, it’s unwise to fall back solely on Social Security for retirement inc