Why You Should Forget About Social Security

By Markets Fool.com

There's no shortage of myths surrounding Social Security, and among the most popular is the idea that Social Security will fail to exist once the program's trust fund is depleted in or around 2034. In fact, according to Transamerica's most recent retirement survey, 77% of American workers are worried that Social Security benefits will no longer be available to them when they reach retirement. The good news, however, is that Social Security is by no means going away. Even the program's worst-case scenario plays out in the form of a 25% reduction in benefits.

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Still, assuming that Social Security won't be around for you in retirement is actually a good strategy. This way, when your benefits do come in, you can use that money for the purpose it was originally intended to serve: to supplement your retirement income, and not constitute it in its entirety.

Putting too much weight on Social Security

One major problem with Social Security today is that far too many older Americans depend on it more heavily than they should. An estimated 25% of beneficiaries 65 and older rely on Social Security to provide all of their retirement income, while the program constitutes the majority of income for up to 65% of beneficiaries overall.

A big reason for this has to do with how little Americans are saving independently. An estimated one-third of Americans admit to having no retirement savings whatsoever. Worse yet, many of those who haven't saved fall into the 55 and over category -- older workers who don't have much time to catch up.

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The issue with this scenario is that Social Security is only supposed to replace about 40% of the average worker's pre-retirement income. But most of us need 70% to 80% of our pre-retirement income to live comfortably once we're no longer working. It's no wonder, then, that so many of today's seniors continue to struggle from a financial perspective. The Senior Citizens League reports that Social Security beneficiaries have lost about 23% of their buying power over the past 16 years, which perfectly illustrates the point that those monthly checks aren't enough to keep most seniors financially afloat. That's why we all need to take matters into our own hands and stop relying so much on Social Security -- even if that means training our brains to pretend it doesn't exist.

Save independently

Rather than take comfort in the monthly benefits checks that, yes, will likely be coming your way, start assuming that your personal savings will constitute most, if not all, of your retirement income. This way, you'll be less reliant on Social Security and you can use those checks for things like leisure or unexpected emergencies that sneak up on you during retirement. Remember, if you count on those checks to pay your basic bills and come up against an unplanned, costly expense as a senior, you run the risk of taking on debt at a time in your life when it'll be extremely difficult to pay it off.

If you're still relatively young with a few decades of work ahead of you, you have plenty of opportunity to make up for lost time and start saving for the future. Contributing $500 a month to a savings plan over 25 years will leave you with almost $440,000 for retirement if your investments generate an average annual 8% return (a figure you can achieve with a stock-heavy portfolio, which is appropriate for investors in their 20s, 30s, and 40s). But if you only leave yourself 10 years to sock away that $500 a month, you'll have just $87,000 when the time comes to retire.

Even if you're already in your 50s or early 60s, you can still take advantage of catch-up opportunities to salvage your retirement savings. Anyone 50 and over can put $24,000 a year into a 401(k) and $6,500 a year into an IRA. Maxing out your 401(k) for four years late in your career would leave you with almost $100,000 for retirement even if your investments achieve minimal growth.

Of course, most of us can't go from saving nothing for retirement to suddenly parting with $24,000 a year, but the key is to do something rather than sit back and wait for those Social Security checks to start rolling in. Social Security plays a key role in helping many seniors cover their expenses in retirement, but counting on those benefits alone to pay the bills means setting yourself up for failure. Better to pretend the program doesn't exist and be pleasantly surprised when those benefits end up coming through.

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