Do you plan to rely on Social Security in retirement? There is a big problem with this.

If you expect Social Security to be a significant source of income in retirement, you’re not alone. 88 percent of current retirees say they rely on their benefits, according to a 2024 Gallup poll, with 60 percent of that group saying their checks are a major source of income.

However, Social Security faces some major challenges that could pose problems for retirees. The program is not as reliable as it used to be, and the situation may worsen in the coming years.

Between potential benefit cuts on the horizon and a serious loss of purchasing power, relying too heavily on Social Security could put retirement at risk.

Image source: Getty Images.

There could be cuts

Although Social Security is not going bankrupt, it is facing cash flow problems that could lead to benefit cuts over the next decade.

The program relies primarily on payroll taxes to fund benefits. Workers pay into Social Security through taxes, and that money is paid to current beneficiaries. But the program has received less revenue than it pays out in benefits, leading to a cash shortfall.

To close the gap and stave off cuts for now, the Social Security Administration pulled money from its trust funds — the Old Age and Survivors Insurance (OASI) and the Disability Insurance (DI) funds. These funds won’t last forever, however, and according to the latest estimates from the Social Security Administration, they are expected to be depleted by 2035.

Once both funds are exhausted, the program’s revenue streams will only be sufficient to cover approximately 83% of scheduled benefits. In other words, benefits could be reduced by about 17% by 2035.

There’s a good chance lawmakers will find some sort of solution before then. But even some of these solutions could still hurt retirees — such as raising the full retirement age or cutting benefits for high earners. It might be wise, then, to start preparing for smaller checks just in case.

Benefits lose purchasing power

Another serious problem affecting Social Security is the loss of purchasing power over the years. Despite annual cost-of-living adjustments (COLAs), benefits have consistently failed to keep pace with rising inflation.

Even record COLAs weren’t enough to combat inflated costs. In 2023, Social Security recipients received an 8.7 percent adjustment — the largest in four decades. However, just six months earlier, in June 2022, inflation peaked at 9.1%.

Over time, these shortcomings add up. In fact, benefits have lost 36 percent of their purchasing power since 2000, according to a 2023 study by the nonprofit group The Senior Citizens League. The study also showed that to maintain the same purchasing power as in 2000, beneficiaries would need $516.70 more per month.

The average retired worker collects about $1,900 a month in benefits, according to 2024 data from the Social Security Administration. Even an 8.7% COLA works out to about $165 more per month, and we’re unlikely to see any more adjustments like that anytime soon. To collect the additional $516 per month needed to maintain purchasing power, a retiree earning $1,900 per month in benefits would need a COLA of about 27%.

In other words, benefits are quickly losing purchasing power, and even higher-than-average COLAs probably won’t fix the problem. Coupled with potential cuts through 2035, when the trust funds are expected to run out, retirees who rely heavily on Social Security could be particularly hard hit.

What can you do right now?

If you’re already retired and have little or no other sources of income outside of Social Security, there may not be much you can do — other than do your best to save what you can to build some sort of nest egg.

But if you still have some time before retirement, now is the best opportunity to reduce your reliance on your benefits. This could mean increasing your savings to build a stronger retirement fund, for example, or perhaps choosing a source of passive income.

You can also consider delaying claiming benefits to earn bigger checks. The average benefit amount at age 70 is about $2,038 per month, according to the Social Security Administration. Meanwhile, the average payment at age 62 is just $1,298 per month — a difference of about $740 per month. If benefits face cuts or a continued loss of purchasing power, that extra cash can go a long way.

Social Security can be a lifeline in retirement, but depending on it too much could put your finances at risk. By taking steps now to build a more financially secure retirement, you can protect yourself no matter what the future holds for Social Security.