Why Social Security Alone Isn’t a Retirement Plan

Jenny Lou Faber |

For many Americans, Social Security feels like the foundation of retirement. After all, you’ve paid into the system for decades, and those benefits can represent a meaningful source of income once you stop working. But one of the most common — and risky — assumptions we see is the belief that Social Security alone will be “enough” to retire confidently.

The reality is more nuanced. Social Security is an important piece of the puzzle, but it was never designed to carry the entire weight of retirement on its own.

Social Security’s Role — and Its Limits

Social Security was originally intended to replace only about 40% of pre-retirement income for the average worker. For most households, that means benefits are meant to supplement retirement savings, not replace a paycheck.

Adding to the uncertainty are ongoing discussions around the program’s long-term funding. Current projections estimate the Social Security trust fund could face shortfalls in the early 2030s if no changes are made. While this doesn’t mean benefits will disappear, it does create understandable anxiety around future reductions, delayed claiming rules, or tax changes.

As a result, many retirees and pre-retirees are asking important questions:

  • When should I claim my benefits?
  • Should I take Social Security early, or wait?
  • How does this fit into my broader retirement plan?

 

Claiming Age: A Decision With Long-Term Impact

One of the biggest decisions retirees make is when to claim Social Security. Claiming at age 62 provides income sooner, but at a permanently reduced level. Waiting until full retirement age — or even age 70 — can significantly increase monthly benefits.

However, the “best” choice isn’t universal. Health, family longevity, lifestyle goals, and other income sources all play a role. For married couples, the strategy becomes even more complex. In many cases, having the higher-earning spouse delay benefits can help maximize long-term income and survivor benefits for the household.

This is where careful planning matters. Claiming decisions are often irreversible, and small missteps can have lifelong consequences.

Inflation, Taxes, and the Reality of Net Benefits

Another common misconception is that cost-of-living adjustments (COLAs) will fully protect purchasing power over time. While COLAs help, they don’t always keep pace with real-world expenses — especially healthcare.

Medicare premiums are typically deducted directly from Social Security checks, reducing net income. Taxes can further erode benefits depending on your overall income. When these factors aren’t accounted for upfront, retirees may find their cash flow tighter than expected.

 

Why Supplemental Income Matters More Than Ever

Traditional pensions are increasingly rare, which means retirees must be more intentional about building additional income streams. These might include:

  • Investment portfolios designed for income
  • Rental properties
  • Annuities
  • Dividend-paying investments
  • Small businesses or monetized hobbies

The goal isn’t necessarily complexity — it’s resilience. Layering multiple income sources can potentially reduce reliance on Social Security and provide flexibility if expenses or policies change.

Protecting Retirement From Healthcare Risks

Healthcare costs, particularly long-term care, are another threat to retirement viability. A single extended care event can quickly drain assets if no plan is in place. Evaluating insurance options and planning ahead can help safeguard both retirement income and the legacy you intend to leave behind.

 

Why Guidance Matters

Social Security decisions are among the most impactful financial choices retirees make, yet they’re often made with incomplete or conflicting information. A thoughtful strategy considers:

  • Claiming age and longevity
  • Spousal and survivor benefits
  • Taxes and Medicare interactions
  • Inflation and legislative risk
  • Integration with savings and investment income

When Social Security is coordinated with the rest of a financial plan, it becomes a strength — not a stress point.

 

The Bottom Line

Social Security is valuable, but it was never meant to be a standalone retirement plan. A confident retirement typically requires planning, diversification, and proactive decision-making well before benefits begin.

If you’re approaching retirement — or already there — the most important step is understanding how Social Security fits into your broader financial picture. The earlier that conversation begins, the more options you’re likely to have.

 

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.​