3 Reasons You Don't Want to Retire on Just Social Security

Retiring on Social Security alone isn't necessarily something people plan to do. Often, people have the best of intentions when it comes to building retirement savings but end up falling short due to a variety of factors.

But there are some people who do plan to retire on just Social Security, thinking those benefits will be enough to get them through their senior years. Here are three reasons why that's a very bad idea.

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1. Your benefits will only provide so much replacement income

You won't necessarily have the same spending needs in retirement as during your working years. There's a good chance you'll be able to reduce at least a few expenses, such as commuting and potentially housing if your home is paid off by the time your career wraps up.

But as a general rule, retirees are advised to have enough income to replace 70% to 80% of their former pay. And you should know that Social Security will only take the place of about 40% of your pre-retirement income if you earn an average wage.

For this reason, it's important to have additional income streams at your disposal. Taking that large a pay cut could mean living a very bare-boned lifestyle -- one you're not happy with at all.

2. Surprise expenses can arise

If you live extremely frugally, it may be possible to cover your recurring expenses on just Social Security. But what happens when a surprise expense arises?

In retirement, there are a host of unknown expenses that could arise. You might end up needing a substantial home repair. Your car might need expensive work. Or you could end up with large medical bills due to an unanticipated health issue.

That's why it's important to have more than just Social Security for income in retirement. Chances are, if you're living on those benefits alone, you'll be spending them in full every month, leaving you without money to cover emergency expenses or unplanned situations.

3. Inflation could be a beast

Social Security benefits are eligible for an annual cost-of-living adjustment, or COLA. The purpose is to help ensure that benefits are able to keep up with inflation.

However, due to a flaw in the way Social Security COLAs are calculated, they tend to fall short and cause seniors to lose out on buying power from year to year. And if inflation ends up being consistently high during your senior years, not having income outside of Social Security could cause you to fall behind on your basic expenses.

Don't just rely on Social Security for retirement income

There's nothing wrong with assuming you'll get a good chunk of your retirement income from Social Security. But it's also important to have money on top of those benefits to live on.

To that end, aim to save and invest consistently throughout your working years, even if it's a modest amount of money each month. Saving $100 per month in an IRA or 401(k) plan over 40 years will give you about $350,000 if your investments give you an 8% yearly return, which is a bit below the stock market's average.

If you really can't manage to save for retirement, you may want to plan to work part-time during your senior years to supplement your Social Security. Even though it may technically be possible to live on those benefits alone, that really isn't something you should want to do.

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