Should I Save for Retirement as If Social Security Won't Exist?

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One of the biggest income sources retirees have at their disposal today is Social Security. With an average retired worker benefit of $2,000 a month, it's clear that living on Social Security isn't ideal. But when combined with other income sources, those benefits can be a source of financial stability and lead to a comfortable retirement.

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The problem is that Social Security is facing its share of financial challenges. And as a result, many people are worried about Social Security going away completely.

Image source: Getty Images.

A recent survey by the Employee Benefit Research Institute found that 87% of workers expect Social Security to provide them with retirement income. And so not surprisingly, when asked to identify their top retirement concerns, "changes that would reduce your Social Security retirement benefit" was the top worry among workers, with 60% expressing that fear.

In light of the program's financial woes, a 30-year-old Reddit poster recently posed an interesting Social Security question: Should I be saving for retirement like my Social Security won't exist? The poster is worried there won't be benefits for the program to pay by the time they retire.

Should I be saving for retirement like my social security won’t exist by then?
byu/hi_goodbye21 inpersonalfinance

It's a valid question to be asking. And it's not a bad idea to save for retirement as if Social Security won't exist. But that's not the reality this poster, or any worker today, is likely to face.

What's really happening with Social Security?

It's true that Social Security is facing a major financial crisis. In the coming years, baby boomers are expected to exit the workforce in droves. And they've earned the right to retire after putting in their time.

The problem is that Social Security gets the bulk of its revenue from payroll taxes. A shrinking labor force thanks to the mass exodus of baby boomers is expected to result in a revenue shortfall.

Social Security will be able to tap its trust funds as long as money remains to keep up with benefit payments. Once those trust funds run out of money, benefit cuts will be on the table.

That doesn't mean Social Security cuts are guaranteed. But it's not safe, financially speaking, to assume that benefits won't be reduced.

The most recent estimate from the Social Security Trustees has the program's combined trust funds running out of money in 2035. That time frame could change, of course. But unless lawmakers intervene, workers today may be looking at reduced benefits in the future.

To be clear, though, there's a big difference between Social Security cutting benefits and going away altogether. The Reddit poster seems convinced there won't be any Social Security for them when, in reality, today's workers could still end up getting the bulk of the benefits they're owed once they retire. But the poster's line of thinking also isn't terrible.

It's not a bad thing to save as if Social Security will be gone

Pushing yourself to save for retirement isn't an easy thing. It means you'll have to give something up – a nicer home, vacations, free time – to consistently fund an IRA or 401(k).

Some people have trouble motivating themselves to save independently for retirement. But if you don't save for retirement, you might end up in a dire financial situation even if Social Security isn't cut.

If you earn an average paycheck, you can expect Social Security to take the place of 40% of your pre-retirement wages. But most retirees need roughly 70% to 80% of their former income to live comfortably.

You may be able to get by on less with a frugal lifestyle. But all told, you should expect to need savings of your own to maintain your standard of living. So if telling yourself that Social Security won't be around is what lights a fire under you to prioritize your savings, that's not a terrible thing.

How much should you be saving? Experts say to set aside 15% to 20% of your income. If that's not doable, don't give up. Save less, but save consistently and invest strategically.

Socking away $300 a month in an IRA or 401(k) over 40 years could amount to almost $933,000 if your investments generate an annual 8% return, which is a notch below the stock market's average. A nest egg that large could supplement your Social Security checks nicely in retirement – no matter what they amount to.

Keep in mind that it's important to diversify your retirement investments so your portfolio can grow without being exposed to too much risk. If you have a 401(k), consider investing in S&P 500 index funds. With an IRA, a combination of S&P 500 funds and individual stocks across different market sectors could be a good bet.

All told, Social Security isn't in danger of disappearing so much as cutting benefits. And even those cuts aren't a given. But it's important to save on your own for retirement so you're able to cover your costs without worry. If telling yourself Social Security won't be around for you serves as motivation to save, so be it.

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.