3 disappointing facts about Social Security

An average earner's Social Security will replace about 40% of pre-retirement wages

A lot of seniors today rely on Social Security to pay the bills in retirement, and chances are, you'll one day do the same. But there's a lot of misinformation about Social Security, and if you don't understand how it works, it could really throw off your retirement planning. In fact, you may be unpleasantly surprised to learn that Social Security has its share of drawbacks. Here are three points about the program that may leave you disappointed.

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1. It won't replace your earnings in full

Some people assume that Social Security will take the place of their former paychecks. Not even close. If you're an average earner, Social Security will replace about 40% of your pre-retirement wages -- and that's if benefits aren't slashed in the future (more on that down below).

For context, the average Social Security recipient today collects about $1,500 a month, or $18,000 a year. If you're an average earner, you can expect a comparable benefit down the line, adjusted for inflation.

In fact, the best way to get a sense of what your monthly benefits will look like is to access your annual earnings statements. If you're under 60, you'll need to create an account on the Social Security Administration's website to access your statements; otherwise they should come in the mail. The closer you are to retirement, the more accurate your benefits estimate will be, so keep that in mind when you look at those numbers.

2. You'll take a permanent hit on benefits if you claim them early

Seniors are allowed to file for Social Security as early as age 62. But if you go that route, you'll reduce your benefits substantially -- for life.

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The option to claim benefits early isn't just as freebie; it's one you'll need to consider carefully to ensure that you don't wind up cash-strapped down the line. You're only entitled to your full monthly benefit once you reach full retirement age, which begins at age 66 at the earliest (and for anyone born in 1960 or later, it's not until 67). If you claim Social Security early, your full monthly benefit will not be reinstated once you reach full retirement age, so think carefully before moving forward with your filing.

3. Benefits may be cut in the not-so-distant future

Social Security expects to owe more money in benefits than it collects in revenue in the coming years as baby boomers make a mass exodus from the workforce. The program can tap its trust funds in the near term to make up that difference, but once those trust funds run out of money, benefit cuts will be on the table.

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In April, the Social Security Trustees projected that the program's trust funds would be depleted by 2035, but that milestone could come a lot sooner due to the impact of the COVID-19 pandemic. Now, remember when we said that Social Security would only replace about 40% of your pre-retirement income? If benefit cuts do end up happening, it will replace an even smaller percentage, so consider yourself warned.

Clearly, Social Security has its share of shortcomings. The best way to compensate? Do a good job of saving for retirement independently. If you work for a company with a 401(k), sign up and start having money taken out of each paycheck for your senior years. If you don't have 401(k) access or are self-employed, open an IRA. If you consistently fund a retirement plan during your working years, you won't have to worry as much about Social Security, and the sooner you begin saving, the more personal wealth you stand to accumulate over time.

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