Social Security provides a critical source of retirement income for millions of retirees. For many years, it was seen as part of a “three-legged stool” of retirement planning, with the other two legs being a pension and personal savings. But times have changed since then, and many workers are struggling to save for retirement largely on their own.
In spite of receiving Social Security checks, 44% of retirees are considering a return to the workforce, according to The Motley Fool’s recent research on attitudes toward the Social Security cost-of-living adjustment (COLA). Here’s a closer look at why.
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Social Security was never intended to cover all of your retirement expenses
As discussed above, the government designed Social Security to supplement personal savings and a pension. But today’s workers rarely receive pensions, and many have struggled to make up the difference in personal savings. That makes them increasingly reliant upon Social Security.
Social Security covers about 40% of pre-retirement income for workers with average earnings. If you need 80% of your pre-retirement income to cover your retirement expenses, that leaves you to come up with half the funds on your own. Those who aren’t able to save enough in a retirement account may choose to go back to work instead.
Social Security’s buying power is declining
Social Security’s buying power has dropped 20% since 2010, according to The Senior Citizens League (TSCL). That means you’d have to spend $1 today to get what you could get with $0.80 14 years ago. This is in spite of annual cost-of-living adjustments (COLAs), which are supposed to help benefits keep up with inflation.
To make matters more complicated, the gradual rise in average benefit checks is putting more recipients at risk of owing Social Security benefit taxes every year. This could leave them with even less to cover their own expenses, forcing them to rely more upon income from a job to make ends meet.
Social Security’s future is uncertain
The latest Social Security Trustees Report predicts that the program’s trust funds will be depleted in 2035. After this, it will only be able to pay out about 83% of scheduled benefits going forward.
It’s likely the government will intervene and find a way to increase the program’s funding before this occurs. But we have no way of knowing what the fix will look like. So some retirees may prefer to return to work and a source of income that’s more predictable.
What can you do?
Seniors cannot control Social Security’s diminishing buying power or trust funds, so returning to work is an option for those struggling to cover their retirement costs with their benefits alone. Those contemplating a move like this should note that they don’t have to go back to the type of work they did their entire lives.
You can choose something that feels more in line with your interests and talents. It doesn’t have to pay as well as your jobs in years past, either. It just needs to give you enough income to cover your basic expenses.
If you don’t want to give up too much of your free time, you could consider part-time work. Or you may be able to find something remote, depending on your skill set. This could be a good option for those who hope to travel in retirement, or those who have family caretaking requirements or health conditions that may limit their ability to work in person.
It might not be your ideal retirement, but it’s a better option than running out of money. You don’t have to work your whole retirement, either. Consider returning to the workforce for just a few years. If you’re able to boost your savings enough, you may be able to transition back to a full retirement.