Why the Average $25,000 Social Security Check Falls Short of Retirement Costs

Quick Read

• The average retiree receives about $25,000 a year from Social Security, which covers only 41% of the $61,432 older Americans typically spend annually.

• That average benefit is barely enough to handle housing expenses on its own, while transportation, food, and healthcare remain largely uncovered.

• Putting aside $300 a month beginning at age 25 could grow to nearly $933,000 by age 65, producing about $37,000 a year to help fill the gap.

Financial planners often give the same advice: start saving for retirement as early as possible. There is a simple reason for that.

Many retirees rely only on Social Security, and those households often face serious financial strain. Without strong retirement savings, you could wind up in the same position.

Here is a look at how the average Social Security benefit compares with the cost of retirement in the United States.

How far the average Social Security benefit goes

The average monthly Social Security benefit generally increases over time because benefits receive annual cost-of-living adjustments. Using recent figures, the average monthly benefit for retirees is about $2,088, which works out to just over $25,000 per year.

That amount can be weighed against what retirement actually costs. The latest Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics shows that households headed by someone age 65 or older spend an average of $61,432 each year.

That spending breaks down this way:

• Housing: $22,193 per year

• Transportation: $9,538 per year

• Food: $7,940 per year

• Healthcare: $7,799 per year

The rest, roughly $14,000, goes toward other retirement expenses.

Why Social Security alone is not enough

That means the typical Social Security benefit covers only about 41% of what the average older American spends. For anyone expecting to retire solely on Social Security, the average payment may not stretch much beyond housing costs.

If you want to avoid a financially stressful retirement, building savings matters. The encouraging part is that you do not have to save huge sums each month to make progress. Consistent investing over many years can do a lot of the work for you.

For example, if you save $300 a month starting at age 25 and keep going until age 65, and if those savings earn an 8% annual return in a stock-heavy portfolio, the account could grow to nearly $933,000.

Using the common 4% withdrawal rule, that balance could provide about $37,000 a year in retirement income. When combined with $25,000 from Social Security, that would roughly match the annual spending of the average older household.

Without those withdrawals from retirement accounts, however, the math does not work. Social Security can be an important part of retirement income, but depending on it alone is not a sound plan. Without any savings, even a modest lifestyle may be out of reach.