Millions of older Americans today get a monthly benefit from Social Security. And for many, that income is crucial.

A 2020 report by the National Institute on Retirement Security found that only 7% of retirees have an optimal combination of retirement income sources — Social Security, savings, and a pension. And 40% of older Americans rely only on Social Security income in retirement.

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But if you end up living on Social Security alone, you could be in for a very stressful retirement. Here’s why those benefits should not act as your only senior income source.

1. Your benefits won’t come close to replacing your paycheck

If you earn an average wage, you can expect Social Security to replace about 40% of your former paycheck. But that’s problematic, since most seniors need about 70% to 80% of their previous earnings to maintain a comfortable lifestyle.

It’s a big myth that your living costs will magically drop by half once you retire. It’s true that you may be mortgage-free at that point, and that you’ll be shedding your commuting costs in the absence of having a job to go to.

But the rest of your expenses are likely to hold steady. And some, like healthcare, might increase. So it’s best to bank on needing more than just 40% of your former income.

2. Benefits are at risk of being cut

It’s bad enough that retiring on Social Security alone will mean taking a 60% pay cut. But benefits are also at risk of sweeping reductions in about 10 years’ time, which is when Social Security’s combined trust funds are expected to run out of money.

The problem is that Social Security gets most of its revenue from payroll taxes. But a shrinking workforce will, in the coming years, strip Social Security of critical revenue.

If benefits end up being slashed broadly, Social Security will provide retirees with even less replacement income. So as difficult as it may be to live on just 40% of your former paycheck, now imagine having to get by on even less.

3. Your benefits may not keep up with inflation

Social Security benefits are eligible for an automatic cost-of-living adjustment (COLA) each year. But those COLAs have long made it difficult for seniors to actually maintain their buying power over time. In fact, a 2024 report by the Senior Citizens League found that Social Security benefits had lost 20% of their buying power since 2010.

Adjusting the formula for COLA calculations to a more senior-specific index could result in annual increases that are more helpful to retirees. But until lawmakers agree to that change, Social Security’s COLAs will likely continue falling short.

Have a better plan

It’s clear that retiring on just Social Security could lead to a world of financial hardship. Rather than put yourself in that situation, do your best to build savings during your working years so you have a portfolio to tap during retirement.

And also, set yourself up with the right investments during retirement. You may want to focus on income-producing assets like dividend stocks and bonds, which can potentially generate steady returns for your portfolio even during periods of market volatility. You can also talk to a financial advisor about assembling an appropriate investment mix so you’re able to supplement your Social Security benefits nicely once you’re no longer collecting a regular paycheck from work.

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