Why the Typical Social Security Check Falls Short of Fully Funding Retirement

Many retirees depend on Social Security for a large share of their income, but the math behind that strategy shows a shortfall that can be difficult to make up later.

There are many retirees today who are living on just Social Security. And people in that situation tend to struggle financially. If you don’t save well for retirement, you could end up being one of them.

Financial planners often repeat the same advice: start saving for retirement as early as possible. That guidance matters because retirement expenses can quickly outpace a modest monthly benefit.

To see why saving matters, compare the average Social Security benefit with what older Americans typically spend in retirement.

How far the average Social Security benefit goes

The average monthly Social Security benefit generally increases over time because it is adjusted for cost of living. Using the latest available figure in the original article, the average monthly retirement benefit was about $2,088, which works out to a little more than $25,000 a year.

That amount is far below the average annual spending of households headed by someone age 65 or older. According to the most recent Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics, those households spend an average of $61,432 a year.

Here’s a closer look at where that money goes:

• Housing: $22,193 annually
• Transportation: $9,538 annually
• Food: $7,940 annually
• Healthcare: $7,799 annually

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

In other words, the typical Social Security benefit covers only about 41% of what the average older American spends each year. For anyone hoping to retire on Social Security alone, that means the benefit may cover little more than housing costs.

Why saving ahead of time matters

Retirement does not have to become a financial struggle, but avoiding that outcome requires building savings over time. The encouraging part is that you do not need to set aside huge sums every month. Consistent contributions to a retirement account, especially when started early, can grow significantly over the years.

For example, if someone saved $300 a month starting at age 25 and kept doing so until age 65, and if those investments earned 8% annually, the account could grow to nearly $933,000.

Using the widely cited 4% rule, that balance could provide about $37,000 a year in withdrawals. Added to roughly $25,000 a year from Social Security, that would be enough to match the average older American’s annual spending.

Without retirement savings, however, the picture changes dramatically. Social Security can be an important part of retirement income, but relying on it by itself is not a realistic plan for most people.