59% of Retirees Use Social Security as a Major Source of Income -- and That's a Problem

Those who work and pay Social Security taxes can look forward to monthly benefits in retirement that cover the bills. Some of the bills, that is.

Social Security was never designed to sustain retirees by itself. Yet 59% of retirees are using it as a major source of income, according to a new report by the Employee Benefit Research Institute.

If you're planning to rely heavily on Social Security when your career comes to an end, you should know that in doing so, you'll risk falling short on retirement income. That's why you need to actively save for retirement rather than fall back on benefits that'll most likely cover a smaller percentage of your total senior living costs than expected.

Social Security won't pay for your retirement in full

There's nothing wrong with factoring the income from your Social Security benefits into your retirement budget. However, expecting those benefits to constitute the bulk of your retirement income is a mistake you could sorely regret.

Social Security will only replace about 40% of the average worker's pre-retirement income, which means if you're a higher-than-average earner, it'll replace an even smaller percentage. That number also assumes that cuts in benefits aren't on the table. The latest Social Security Trustees Report warns that recipients could see as much as a 20% reduction in scheduled benefits as early as the year 2035, in which case Social Security will replace even less income for workers.

Meanwhile, if you want to live comfortably in retirement, you should generally expect to need around 80% of your former income. And if your goal is to travel and participate in other such pricey activities, you may need even more.

That's why you can't rely too heavily on Social Security, nor can you afford to neglect your savings during your working years. If you do, you'll likely find that you don't have enough income to pay for the retirement you want.

Save for retirement on your own

If you're not in the habit of saving for retirement, or saving much, because you're convinced you can count on Social Security to pick up most of your senior living tab, then consider this your wakeup call to cut back on expenses in your current budget to free up cash for savings. The good news? You don't need to part with a ton of money to build a respectable nest egg. You just need to give yourself a long enough savings window, as the following table illustrates:

Start Saving $300 a Month at This Age:

You'll Have This Much by Age 67 (Assumes a 7% Average Annual Return):


$1.03 million















As you can see, by giving yourself a 45-year savings window, you can accumulate more than $1 million by setting aside a mere $300 a month. Granted, the above numbers assume an average yearly 7% return on investment, but that's a reasonable figure to work with given that it's a couple of percentage points below the stock market's average. Therefore, if you go heavy on stocks, which you can generally afford to do as long as you have a 10-year savings window or longer, you're likely to see that sort of return or better.

On the other hand, if you wait until your late 40s or 50s to start building your nest egg, you're not going to end up with all that much money for retirement unless you contribute a substantial amount to savings each month. In fact, if you were to start saving at age 57, you'd need to set aside over $6,000 a month to wind up with $1 million to your name, and that's unlikely to happen. Of course, you don't need to retire with $1 million -- but you should aim to retire with more than $50,000.

Social Security alone won't cut it

Social Security should very much be a viable source of income for you in retirement, but it shouldn't necessarily be a major source, and if you want to live comfortably, it absolutely shouldn't be your primary source. Saving consistently during your working years will prevent that from being necessary, though, so start building that nest egg today for a more secure retirement in the future.

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