3 Harsh Social Security Truths That Could Derail Your Retirement Security

Social Security is a cornerstone of retirement planning for millions of Americans. However, relying solely on these benefits can be a risky strategy, given the current and projected financial challenges facing the program. Here are three harsh truths about Social Security that could derail your retirement security if you're not prepared.



1. Social Security Benefits May Not Cover Your Retirement Expenses

The average Social Security retirement benefit was $1,929.20 per month in January 2025, while the average retired household’s monthly expenditures were already $4,581.25 by 2022, according to the most recent data from the Bureau of Labor Statistics (BLS). This indicates a significant gap between Social Security benefits and actual retirement expenses. Social Security benefits are designed to replace about 40% of your annual earnings, which means relying solely on these benefits often results in a shortfall. For example, a retiree with a pre-retirement income of $50,000 would receive approximately $20,000 from Social Security, leaving a $30,000 gap to cover living expenses.

2. Future Benefit Reductions Are Likely

The Social Security Trustees released their annual report showing that the Old-Age & Survivors Insurance (OASI) Trust Fund would be depleted by 2033, at which point benefits would be reduced by 21%. This projection means that future retirees, including Generation X, may face reduced benefits, necessitating more personal savings and alternative income sources. The report also states that if the two trust funds were hypothetically combined, they would be exhausted by 2035 and lead to a 17% reduction in benefits at that point. This further emphasizes the need for Generation X to plan for potential benefit reductions.

3. Inflation Can Exacerbate the Shortfalls

Inflation can make these shortfalls worse. The Social Security Administration (SSA) updates benefits for inflation through the cost-of-living adjustment (COLA), but these increases may not always keep up with the actual expense increases retirees face. For example, a 2023 study by the Senior Citizen’s League found that COLAs increased Social Security benefits by 78% between January 2000 and February 2023, while typical retiree expenses increased by 141% during the same period. This discrepancy results in a loss of buying power for retirees. Additionally, the SSA bases the cola on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which may not perfectly represent changes in typical retiree expenses. As a result, when increases in these costs outpace the COLA, retirees may suffer a loss in buying power. For example, Medicare Part B premiums tend to rise faster than inflation, resulting in a net loss of buying power for retirees. The threshold for taxing Social Security benefits is also not adjusted for inflation, meaning that a high COLA may increase one's tax burden, further reducing the net benefit.

In conclusion, relying solely on Social Security benefits for retirement income could lead to a significant decrease in the standard of living for retirees, especially after 2033 when benefits are projected to be reduced. The gap between benefits and retirement expenses, combined with the potential loss of buying power due to inflation, makes it crucial for individuals to have additional income sources, such as personal savings, to maintain their lifestyle in retirement.

Ask Aime: What impact will the depletion of Social Security's Old-Age & Survivors Insurance Trust Fund by 2033 have on retirees' financial security?