Think Social Security Will Cover Retirement? The Numbers Tell a Different Story.

You may not love the idea of having your wages taxed to fund Social Security. But in exchange for paying into the system, you have the promise of retirement benefits to sustain you once your career comes to an end.

You might think you'll be fine retiring on Social Security alone. And to be fair, plenty of people do it. But you may be shocked to learn how limited your retirement income might be if you don't have savings to supplement those monthly benefits.

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Social Security won't cover all of your retirement needs

One of the biggest misconceptions about Social Security is that it's designed to cover people's expenses in full once they retire. The reality is that it's designed to replace just a portion of workers' preretirement earnings.

More specifically, if you earn an average paycheck, Social Security might take the place of about 40% of your wages. But that means you'll be looking at a 60% pay cut if you retire on those benefits alone.

It's true that many people's expenses drop in retirement. But will your bills drop 60%? That's less likely.

A good benchmark is to try to replace 70% to 80% of your preretirement wages so you have enough income to not only cover your needs but also enjoy your newfound free time. If you don't have anything more than a monthly Social Security check, your retirement could end up being unfulfilling and stressful.

Building savings may be easier than you'd think

Of course, the reason so many people end up retiring on just Social Security is that it's hard to save a bundle of money. Rising expenses and surprise bills could easily eat up your paycheck, even if it's a decent one.

But what you may not realize is that you don't have to put $1,000 a month into your workplace 401(k) to end up with a boatload of retirement savings. Just a few hundred dollars a month might go a long way if you invest your money in the stock market.

Let's say you contribute to a 401(k) for 40 years and your investments give you an 8% annual return, which is a bit below the market's average. If you put in just $350 a month, you could end up with almost $1.1 million in savings. Really.

Social Security is meant to serve as a safety net for retirees. It's not supposed to cover their costs in full. The sooner you realize that, the sooner you can start funding a retirement account and investing so you don't end up having to pinch pennies once your career comes to an end.

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