Almost 22 Million Seniors Live on Social Security Alone. Here's Why That's a Problem.

If you’re someone who reads personal finance websites, you’re probably familiar with the “save for retirement” mantra. And you may even be a little tired of it.

But there’s a reason why personal finance writers make a point to encourage people to save for retirement rather than rely on Social Security alone. If you don’t have income outside those benefits, your senior years could end up being extremely stressful.

The Senior Citizens League, a nonpartisan advocacy group, recently estimated that 21.8 million seniors today get by on Social Security benefits without outside income to fall back on. And not surprisingly, almost two-thirds of seniors say they’re not happy with the amount of money they receive from their monthly Social Security checks.

If your plan for retirement is to live mostly or fully on Social Security, it’s important that you rethink it. If you don’t set yourself up with additional income, you could be in for a very dissatisfying retirement.

The problem with retiring on just Social Security

One of the biggest misconceptions about Social Security is that it’s designed to replace your paycheck in full. If you’re an average earner, Social Security will take the place of about 40% of your preretirement wages. This means that if you’re used to living on $60,000 a year, Social Security might pay you around $24,000.

Now, it’s true that a lot of people see their expenses shrink in retirement. You may not have a mortgage anymore, and you might shed some costs by not having to commute to a job. You may even be able to get rid of a car, depending on your situation.

But unless you’re truly confident that you can manage a 60% pay cut in retirement, you should make an effort to fund an IRA or 401(k) plan so you’re not forced to live on just Social Security later in life. Doing so could mean struggling to cover even basic expenses — forget about extras like travel and leisure.

The threat of benefit cuts isn’t helping matters

Not only might you face a massive pay cut in retirement if you end up having to live on Social Security alone, but you can’t gloss over the fact that benefit cuts are a strong possibility. In the coming years, Social Security isn’t expected to generate enough revenue to keep up with scheduled benefits, which means cuts will be on the table once the program’s trust funds run out of money.

The most recent report by Social Security’s Trustees found that benefit cuts could be on the table in less than a decade. And those cuts could be substantial, coming in at more than 20%.

Remember that 60% pay cut we just talked about? It could end up being even larger if lawmakers don’t find a way to prevent a broad reduction in Social Security benefits. That’s all the more reason to save.

It’s a matter of your future comfort

While it’s not so surprising to learn that almost 22 million seniors today live on only Social Security, that’s far from an ideal situation. If you’re still working, you have a solid opportunity to avoid landing in a similar boat for your senior years.

One thing you should realize is that if you give your retirement savings a long time to grow, you can turn a series of relatively small IRA or 401(k) contributions into a lot of money. In fact, let’s say you’re only able to save $100 a month for retirement, but you do so from ages 25 until 65. If your portfolio gives you an 8% yearly return, which is a bit below the stock market’s average, that could leave you with a nest egg worth almost $311,000.

Then, if you use the 4% rule to dictate how much money you withdraw from your savings in retirement each year, it gives you about $12,400 in annual income from your IRA or 401(k). That’s more than an extra $1,000 each month on top of what Social Security pays you.

Of course, depending on your situation, finding even $100 a month for retirement savings may be tricky. And that’s understandable. But if you’re able to carve out some money for long-term savings, you could set yourself up to be a lot less dependent on Social Security down the line. That could make your retirement much easier and far less stressful.