Why Social Security Can't Be the Center of Your Retirement Income Plan

I was talking to some friends the other day about juggling college and retirement savings, and one of them joked, "What retirement savings?" But as someone who writes about retirement for a living, I didn't find the joke all that funny.

The reality is that far too many people neglect their retirement savings and plan to fall back on Social Security instead. And while there's nothing wrong with factoring those benefits into a retirement income plan, they shouldn't be the focus of it.

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Why you can't rely too much on Social Security

One big misconception about Social Security is that it's meant to replace most or all of your pre-retirement paycheck. In reality, if you earn a pretty average wage, you can expect Social Security to replace about 40% of it.

Now, think about your current expenses. Some might drop in retirement. But do you really think you can afford a 60% pay cut? If the answer is no, then you'll need a more robust income plan -- one that doesn't mean getting most or all of your money from Social Security.

This is especially important today given that Social Security faces the possibility of benefit cuts, and soon. The program's Trustees recently reported that benefits could face a 22% reduction as early as 2032 if lawmakers don't intervene.

Congress has never allowed Social Security to cut benefits before, so there's a good chance a broad reduction will be preventable this time around, too. But that's not something any pre-retiree should bank on.

Make a solid effort to save

Trust me when I say I understand that saving for retirement isn't easy -- not when you're balancing other expenses and persistently rising costs. But if you don't try to save a decent chunk of money for retirement, you might end up cash-strapped down the line -- even if Social Security doesn't cut benefits at all.

If you haven't begun funding an IRA or 401(k), an easy way to get started is to contribute a small amount automatically each month. It can be as little as $25 or $50. The key is to get into the habit of saving and then increase contributions as you're able to.

In fact, if you're behind on savings and can only manage, say, $50 a month this year, pledge to bank your entire raise next year. And then repeat the following year.

There's absolutely nothing wrong with incorporating Social Security into your retirement income plan, because even if benefits are cut, you should still be able to receive the bulk of what you're entitled to. But making those benefits your sole or primary source of retirement income is a move you might sorely regret.

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