3 Reasons Your Future Social Security Benefit Will Disappoint You

If you’re looking forward to the day you receive Social Security, you’re not alone. The pension program is popular among Americans, and many future retirees are eager for the government to begin providing them with a guaranteed source of income.

Unfortunately, when you finally receive the benefits, there’s a good chance you’ll be disappointed. Here are three reasons why this is the case.

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1. Benefits replace only 40% of income

The biggest reason you’ll likely be disappointed with your Social Security benefits is that the check you receive will almost certainly be less than you expect.

If you’re assuming you can live on Social Security alone, or even close to it, you’re probably wrong. Your retirement checks are meant to replace only about 40% of your pre-retirement income. This is not enough for most people to come close to maintaining their standard of living.

To do that, you should replace about 80% to 90% of what you earn. Social Security is not designed to replace so much as it should supplement other sources of income, including a pension and savings. The sooner you realize this, the better, because you can start planning ways to supplement your benefits with your 401(k) and other retirement accounts.

2. You have to wait a long time to avoid the reduction of the benefit

Social Security will let you down for another reason, too. Chances are you’ll want to retire in your early 60s, or at least by age 65, when you become eligible for Medicare. And 65 used be the full retirement age (FRA) for social security. That meant you could then retire with your standard benefit.

Unfortunately, that is no longer the case. Depending on when you were born, Social Security is now between 66 and eight months and 67. If you were born in 1960 or later, your FRA is 67. If you were born in 1959, it’s 66 and 10 months, and if you were born in 1958, it’s 66 and eight months.

But if you claim your benefits before full retirement age, your checks shrink. That means you’re left to decide between delaying the start of payments, which may require delaying retirement, or accepting a lifetime of reduced monthly benefits.

Worse yet, studies have shown that the optimal age to claim Social Security is age 70, because you’re most likely to get the most lifetime benefits if you wait. This happens because you earn delayed retirement credits that increase your payment for each month you wait between FRA and 70.

If you want to maximize Social Security, you’ll need to work a long time, or perhaps live off your savings for nearly a decade of retirement, depending on when you quit working for good. That’s probably not news most future retirees want to hear.

3. Benefits do not keep pace with inflation

Ultimately, you could be disappointed with Social Security because your benefits will end up being worth less in retirement.

Although cost-of-living adjustments (COLAs) are included in the program to try to prevent this, the formula used is not a very accurate measure of the inflation that retirees experience. Instead, the raises are calculated using a formula based on the spending habits of urban wage earners and service workers.

Because the COLAs that Social Security provides underestimate the inflation that actually hits retirees, benefits have lost 36 percent of their purchasing power since 2000. That’s according to the Senior Citizens League. Finding out that your checks will buy you less and less each year can be upsetting, especially if you assumed the COLA would prevent that from happening.

Face these Social Security realities now so you can make sure you have plenty of money from other sources. Don’t rely too much on your pension checks to give you the secure retirement you deserve.