Retiring with Below Average Social Security Income

Key Takeaways:

  • You can have a comfortable retirement even if your average Social Security income is lower than average.
  • Understand how taking Social Security at different times affects how much you could receive.
  • Be aware of other ways to generate supplemental income in retirement.

Social Security is a benefits program managed by the U.S. federal government’s Social Security Administration. You pay into the Social Security fund through wages earned throughout your working career. And the amount of Social Security tax deducted from your paycheck, though relatively fixed in percentage terms, changes according to the size of your wages.

The purpose of Social Security is to pay benefits to eligible retirees, disabled workers and survivors of deceased workers. Though Social Security can be a useful source of supplemental income for retirement, you may not want to rely on it as your primary source of income for a couple of reasons:

  • Social Security benefits can change significantly depending on when you begin taking benefits: before full retirement age, at full retirement age or after full retirement age.
  • Even at the maximum benefit level, your income from Social Security may be inadequate for your discretionary and non-discretionary expenses.

 You should think of additional ways you may be able to generate retirement income early on. If you plan to have other types of retirement savings, such as a pension or cash flow from investments and other retirement plans, you may be able to retire even with lower than average Social Security income.

Social Security Benefits Change Depending on Your Timing

You can elect to receive early Social Security benefits, though your annual benefit amount will likely be reduced. However, if you are looking to receive full Social Security benefits, you may need to wait until you qualify for full retirement age. The earlier your birth year, the younger you may need to be to qualify for full retirement age. For those who can delay taking Social Security, your benefits will increase each year until you turn 70.[i]

The total amount you receive depends on how long you have worked, your wage history and progression and how much you have paid into Social Security during your working years. Total Social Security benefits are designed to be a similar amount over the course of retirement. The benefits are calculated based on the average life expectancy for your age and when you start receiving benefits.[ii]

When determining the right time to begin taking Social Security benefits, some factors to consider include your investment time horizon, your cash flow needs, your tax situation and inflation expectations.

While taking your benefits at any age before 70 could permanently affect the monthly amount you receive, you should be aware of your ability to withdraw your application. If you have already started receiving your Social Security benefits and decide to withdraw your claim, you can start over within 12 months of receiving your first benefit.[iii] The Social Security Administration will allow you to “start over” only once, and you may have to repay your benefits received, after which you can re-apply to receive benefits at a future date.

Taking Social Security Benefits Too Early 

Timing the start of your benefits well can mean the difference between having enough retirement income and having to go back to work in retirement. When making this important choice, take a broader view. Plan for a potentially longer life expectancy and investment time horizon—the length of time you need your money to last.

Also, don’t forget to consider the erosive impact of inflation on your income’s purchasing power over the longer term. Since 1925, inflation has averaged 3% a year.[iv] If that average rate holds in the future, a person who currently requires $50,000 to cover annual living expenses would need approximately $90,000 in 20 years and about $120,000 in 30 years just to maintain the same purchasing power.

Finally, consider whether your spouse may be depending on your benefits after you pass. If you can delay receiving benefits by generating income or cash flow from working longer or pulling from other retirement investments, it may be worth holding off until you have reached your maximum benefit levels.

Risks of Taking Social Security Benefits Later

Of course, this scenario has a flip side. If your life expectancy turns out to be shorter than you planned and you have delayed receiving benefits, you may end up needing more of that income sooner rather than later. If your other income sources are limited, and if you aren’t concerned with planning for a spouse or survivor, then you need to evaluate whether delaying your benefits matches your retirement needs.

The Role of Investments in Your Retirement Cash Flow Plan

What if, regardless of the date you begin taking Social Security, you estimate you still have less income than you need in retirement? This is a worrisome prospect and underscores the importance of investments and other means of retirement savings. It also highlights the secondary role Social Security can play.

Although it is best to begin saving as early as possible for retirement, it is never too late to save. But it is also important to invest your savings wisely, in accordance with your goals. Consider your needs, your spouse’s needs and the needs of any beneficiaries you may have.

We believe asset allocation —your portfolio’s mix of stocks, bonds, cash and other securities—is the greatest determining factor of long-term portfolio performance. Over long periods of time (think multiple decades), asset allocation can be the difference between having enough money in retirement or falling short of your long-term goals. If this isn’t your area of expertise, you may benefit from professional advice.

Planning for the average Social Security benefit isn’t accurate for everyone, and these benefits may be better off as a supplemental form of income to what you might receive from a solid retirement portfolio, pension or other retirement savings.

Consider retirement income sources such as cash flow from different investments and retirement accounts. If your estimate falls short of your needs in retirement, it’s worth considering getting a part-time job in retirement. Part-time jobs in retirement are becoming more and more popular and can be a great way to help you stay engaged and active. In addition, your employer may allow you to make additional contributions to your 401(k). This can increase your available retirement savings and help you be prepared for any unexpected expenses that might come up.

If average Social Security income won’t cover your needs or meet your goals, you may need to make up the difference with investment income generated by your portfolio. Fisher Investments can help you achieve the comfortable retirement you have been working and saving for. Call us today or download one of our educational investing guides.

[i] Source: Social Security Administration, as of 05/15/2019

[ii] Source: Social Security Administration, as of 01/31/2019. https;//

[iii] Source: Social Security Administration, as of 05/15/2019.

[iv] Source: Global Financial Data, as of 07/07/2017. Based on US BLS Consumer Price Index from 1925–2016.

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations.