Why It’s Risky to Rely on Social Security as Your Only Source of Retirement Income

Many Americans count on Social Security retirement benefits, but if you’re relying on this as your ONLY source of retirement income, you may be headed for a difficult retirement. Adding another source of retirement income could give you the financial security you need to enjoy your golden years.

How Much Social Security Will I Get?

The maximum Social Security retirement benefit is $5,108 a month for someone who retires at age 70 in 2025. However, most people don’t receive this much.

The Social Security Administration calculates your benefits based on how much you’ve paid into the system during your 35 highest-earning years. How much you’re paid will depend on how much you’ve earned, with higher earners receiving larger benefits.

When you start receiving benefits also impacts the amount you receive. To receive the full Social Security retirement benefits based on your earning history, you have to wait until full retirement age. Claiming early will reduce your monthly retirement benefits. You can use the Social Security Quick Calculator to estimate your benefit amount.

Social Security: 62 vs 67 vs 70

Depending on when you were born, your full retirement age will be between 66 and 67 years old. Many people retire earlier than this, and you can start receiving Social Security retirement benefits as soon as you turn 62. However, your monthly benefits will be reduced for life if you choose to start collecting them early.

If you don’t need retirement benefits when you reach your full retirement age, you can delay taking your benefits to receive benefit credits that increase your monthly benefit amount. You stop receiving these credits once you turn 70 – at this point, your maximum benefit amount will not increase anymore, even if you continue to delay taking benefits.

When you start claiming benefits has a substantial impact on the amount you receive. To see how much of a difference this makes, consider three people: Andrew, Bob, and Charlie. All three are retiring in 2025 and qualify for the maximum benefit based on their earnings, but their ages are different.

• Andrew is 62. Since he is claiming benefits early, the maximum monthly amount he can receive is $2,831.
• Bob turns 67 in 2025. He was born in 1958, meaning his full retirement age is 66 and 8 months. If he waits until his full retirement age, he will receive a maximum monthly retirement benefit of $4,018.
• Charlie is 70. He delayed taking benefits until he passed his full retirement age, so he will receive a maximum retirement benefit of $5,108.

That huge difference adds up even more over time. Over 12 months, Andrew will receive $33,972, Bob will receive $48,216, and Charlie will receive $61,296.

Many financial advisors recommend waiting until full retirement age, or even until they turn 70, to start claiming Social Security retirement benefits. However, this isn’t always an option. Some people are in poor health and want to start claiming as soon as possible. Others need the money and can’t afford to wait.

Average Social Security Payment Amounts

As of January 2025, the average Social Security retirement benefit is $1,976. This means the average retiree is receiving less than half the maximum amount.

This amount reflects cost of living adjustments, which have been in place since 1972. Every year, Social Security retirement benefit amounts increase based on inflation, measured by the Consumer Price Index. For 2025, retirees received an increase of 2.5%.

Why the Average Social Security Check Isn’t Always Enough

The average Social Security retirement benefit adds up to $23,712 a year. Most people can’t live on this amount, even if they cut their costs during retirement.

Retirement is often much more expensive than people realize. While it’s true that you no longer have to spend money on your daily commute or work attire, you still have expenses associated with housing, taxes, food, clothes, and personal care. Healthcare costs alone tend to be much higher than many people anticipate, since Medicare requires premiums and out-of-pocket costs. You’ll also want some money for hobbies and travel – otherwise, you won’t even be able to enjoy your retirement.

The Federal Reserve Bank of St. Louis says the average annual expenditures for people aged 65 and above came to $60,087 in 2023. The average Social Security retirement benefit only covers about one-third of that expense.

Is Social Security Taxed After Age 70?

There’s another reason your Social Security Retirement Benefits may not go as far as you hoped: taxes.

In addition to paying property and sales tax, retirees may have to pay income taxes on their Social Security Benefits. According to the IRS, Social Security benefits are taxable if a person’s total income comes to more than $25,000 if they are filing as single or $32,000 if they are married and filing jointly. The amount of benefits that are taxable may be 50% or up to 85%, depending on total income. Some states also collect income tax on Social Security benefits. According to Money, retirees in nine states currently pay taxes on Social Security benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Vermont, Utah, and West Virginia.

Social Security’s Future

An AARP survey found that only 36% of Americans are confident in the future of Social Security, which is seven percentage points lower than what a similar survey found in 2020.

A key concern is that Social Security will run out of money. Indeed, under current projections, the Social Security Board of Trustees predicts that taxes will only cover 75% of benefits by 2035. Although it’s not clear what will happen, some worry that the shortfall will prompt cuts to the retirement benefits program.

Finding Other Sources of Retirement Income

You know what they say about putting all your eggs in one basket. Many people rely on Social Security retirement benefits but relying on it as your sole or even your primary source of retirement income could leave you in a bad situation.

Many seniors are realizing this and are looking for other sources of retirement income.

Some have returned to work, often on a part-time or freelance basis. People of all ages have found value in side gigs and hustles – retirees may also try to use their skills to earn some extra cash to supplement their retirement.

Annuities are another option. If you have some savings you want to turn into a stream of retirement income, an annuity may be a good idea. This may be ideal for retirees who have a nest egg but are worried about running out of money.

If you’re interested in buying an annuity to fund your retirement, the next step is to learn more about the different annuity types, so you can find the right tool to support your retirement goals. Some offer guaranteed rates, while others come with variable rates. The fees, term lengths, and other important details also vary. You will find answers to frequently asked questions about annuities here.

Ask us about our all-new annuity option, Forever Fund, designed to deliver guaranteed retirement income you can’t outlive. Launching in late August, this powerful new solution helps you plan with confidence for every chapter of retirement.