-
Living solely on Social Security could create an income shortfall in retirement.
-
Not only are benefit cuts possible, but COLAs often fail.
-
It’s smart to supplement your Social Security with ETFs that can generate steady income.
-
If you’re thinking about retiring or know someone who is, there are three quick questions that make many Americans realize they may retire earlier than expected. take 5 minutes to learn more here
Today there are millions of retired Americans who earn most of their income from Social Security. And that, frankly, is not a good position.
There are multiple reasons for this. Here’s why it’s not wise to retire on those benefits alone and what you should do instead.
You might expect to receive a lot of monthly income from Social Security once you retire. But did you know that the average retirement benefit today is only $2,015 a month? That’s just over $24,000 a year.
In fact, if you earn an average salary, you can expect Social Security to replace about 40% of it once you retire. But there is a caveat, and that is that the program faces the possibility of benefit cuts over the next 10 years.
Over the next decade, as baby boomers retire en masse, Social Security will lose key revenue it needs to keep up with benefits. And once the program’s trust funds run out, Social Security may have to cut benefits unless lawmakers find a way to give the program a cash infusion.
But Social Security’s insolvency is not the only problem affecting the program. Another big problem is that Social Security’s annual cost-of-living adjustments, or COLAs, often tend to backfire, leaving seniors with increases that don’t actually keep pace with inflation as they should.
Social Security COLAs are not measured by a specific index for seniors. Rather, they are based on the Consumer Price Index for Urban Wage Earners and Office Workers (CPI-W), which measures costs incurred by workers in cities.
One of the main reasons Social Security COLAs tend to fail seniors is that health care costs, which are a huge expense for retirees, commonly rise faster than general inflation. But that’s not something that’s reflected in COLA calculations, leaving seniors with annual increases that cause them to lose purchasing power.
Social Security clearly has some major flaws. It will only replace a limited amount of your paycheck, benefits may be cut in the future, and COLAs don’t do the job they are supposed to do.