Is Social Security Really a Retirement Plan?

Most of us commonly think of Social Security as almost synonymous with retirement — but it was never planned to be.

When it was established in the 1930s it was set up to be primarily an anti-poverty program—or “social insurance”—dealing with old age, poverty, unemployment, and the burdens of widows and fatherless children.

The stock market crash of 1929 and the onset of the Great Depression collapsed incomes across the board and wiped out the savings of many of the elderly.  The government responded by implementing Social Security to remedy many of these economic ills.

Strictly speaking, it was never intended to be a retirement plan as much as a supplement for lost wages.

The Depression is now deep in the history books and with it, the original intent of Social Security.  Today it’s mostly seen as a retirement plan.

But is it really?

Why you can’t rely on Social Security alone

For millions of people, Social Security will be either the biggest portion of income they will receive in retirement, or even the only income they have during their retirement years.

Can we rely on it to that degree?

According to the Social Security Administration the maximum social security benefit is $2,513 a month.  The minimum benefit–are you ready for this—is one dollar!

Most people will fall somewhere in between, and that doesn’t sound at all like a plan that can be relied upon to insure a comfortable retirement.  That’s why we all need to have other sources of income in place.

Think of Social Security as just one part of your retirement planning

social security and retirement

What do you think of social security as a retirement plan?

We should never ignore Social Security as an income source in retirement—we just shouldn’t count too heavily on it for planning purposes.

Once again, according to the Social Security Administration, the the average monthly benefit is $1,230, or just about exactly halfway between the $1 minimum and the $2,513 maximum.

With the cost of living being what it is today that’s a true supplement and little more.

One of the complications we have with developing a more balanced approach to retirement planning is that relatively few employers have traditional defined benefit pension plans any more.  That eliminates what was once a reliable component of retirement income.

In a very real sense when it comes to retirement planning, we’re truly on our own.

Even though retirement is an event that’s decades away for many, when it comes to retirement planning, there’s a definite element of carpe diem, or seize the day.  As in this day—we need to be working now to be ready for a retirement that will be mostly the product our own efforts.

Building other sources of retirement income

Since we know that we can’t rely on employers and the government to provide even the majority of our retirement income, we should have all the incentive we need to make our own arrangements.

The two primary alternate income sources can be either self directed retirement plans or some form of post-retirement employment or self-employment.  The combination of both would be ideal.  (Work in retirement sounds like an oxymoron, but I’ll show you why it could be important in a moment).

Self-directed retirement plans have become a retirement planning necessity, and for a number of reasons they can be even better than traditional company pensions:

  • They’re generally tax deductible, which is an outstanding benefit while your saving;
  • Employer sponsored plans often include an employer match that’s like found money;
  • Since they’re self-directed we can take on as much risk—or risk avoidance—as we choose;
  • Unlike traditional pensions, we always know what we have in self-directed plans;
  • There’s less chance that a 401k plan will be squandered or poorly invested as sometimes happens with pension funds;
  • By maximizing contributions it’s possible to build a plan that dwarfs a traditional pension plan.

When it comes to self-directed retirement plans, we need to plunge in with all the financial resources we have.

Now, let’s get back to that working in retirement thing.

There are several strong reasons why you might want to have a work plan for your retirement years:

  • Working past retirement age is a way to preserve and extend retirement savings for years;
  • Working can provide some insurance against a less than expected retirement portfolio, or even a post-retirement stock market slide;
  • Employment income can form the third part of a retirement plan that includes Social Security and retirement investment income;
  • By working and delaying collecting Social Security until age 70 you can increase your monthly benefit by up to 32%.

Most of us think of retirement as a complete end to work, but as you can see there are compelling reasons why you might want to delay full retirement by at least a few years.  At a minimum, having some sort of post-retirement employment/self-employment will keep open some options that will be good ones to have.

The low numbers on Social Security benefits shouldn’t be seen as a source of concern nearly as much as we should use them as a wake up call to make our own arrangements for retirement income—as if we need any more incentive…

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Published or updated October 24, 2012.


  1. I think it will be there even when I retire (I’m 37) but I’ve always thought that it will be one piece, and a small piece at that, of what I would need in order to achieve a successful retirement.

  2. I’m not convinced we will even have an “Old Age Pension” as we have in the UK by the time I retire – and I have 25 years left to go.

    So if it is – what a blessing, if not – well I had better get a wiggle on and make some alternate provision pretty quickly. To not do so would be pretty foolish

  3. My wife’s grandfather gets social security after working all his life, and when I heard the amount, I quickly realized that there will have to be a plan B for my retirement income. Definitely not a reliable source of income.

  4. By the time I retire social security will probably be non-exsistant.

    • What makes you say that?

      • uclalien says:

        The following information is from a SS statement: “In 2016 we will begin paying more in benefits than we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted* and there will be enough money to pay only about 76 cents for each dollar of scheduled benefits.”

        Put another way, “We (the SS Admin) will be out of money in 2037. The jig is up. The Ponzi scheme has been revealed. After 2037, we will only be able to pay out as much as we take in annually.”

        While I don’t necessarily share the opinion that SS will be non-existent, statements like this don’t instill confidence in the system. By the time I retire (that is…if I retire), SS payments will likely be approaching insignificance. At some point, the government is just going to call a tax a tax and change rules of the game (in other words, tell a certain portion of the population they’re out of luck and they get nothing).

        • I read the same trustee report and came away with a rather different perspective. My takeaway was, “even with no legislative changes whatsoever, we can pay everything promised for the next 20+ years, and even after that, we’ll still be able to pay approximately 3/4 of promised benefits.”

          It’s not all roses, but it’s hardly a doomsday scenario.

          • uclalien says:

            I’m not saying it’s doomsday, just pointing out facts. SS will look very different by the time I’m eligible to receive benefits. By 2037, SS will be, by definition, a Ponzi scheme. As it stands, current distributions will rely 100% on current contributions. (Although, I’m hesitant to say that this isn’t already the case. I have trouble believing politicians who’ve run up nearly $16 trillion in debt are fiscally disciplined enough to keep their proverbial hand out of the cookie jar). And the fact is, Ponzi schemes haven’t fared too well in the past.

            Also, keep in mind that there are a lot of moving parts to that 3/4 benefit that will supposedly be earned. An economic downturn or two like we are currently in the midst of or a shift in demographics (e.g., longer life expectancy, a change in immigration/citizenship policy, etc.) could have major implications.

            I should also add that the SS Admin isn’t saying it will actually pay out 3/4 of “promised” benefits, only that it theoretically could. In other words, for every dollar I put in, I will get back $0.75…at most. Why do I get the sense this isn’t such a good deal?

            On that note, I’d like to extend an offer to everyone reading this post. I am giving you the opportunity to give me as much money as you’d like! In return, I “promise” to return 80% of that amount in 30 years. Who’s in?

            • If the SSA were to pay out 75% of currently-promised benefits, that’s not at all the same thing as giving you $0.75 for every dollar you put in.

              It could be more. It could be less. It depends on how long you live and what your historical earnings were.

              • uclalien says:

                I’m fairly certain that the SSA isn’t promising most people more than they put in. So even 75% is probably over optimistically high.

                • I’m not disagreeing with the assertion that many people will get back less than they put in. I’m just pointing out that the current system never promises a certain return on your contribution. That just isn’t how the benefit formulas work.

                  Some people (e.g,, those at the lower end of the income spectrum, those who live longer than average, those married to a high-earning person who have a lower earnings record themselves, people with low earnings records who are the divorced spouses of people with high earnings records, or people who have a child right around retirement age) end up getting a relatively higher ROI while others end up getting a lower ROI.

              • Don’t forget the since the government controls the CPI number and can print money in theory Social Security will never run out of money…technically.

  5. I learned a long time ago that I cannot rely on one source for anyting. Social Security is no different. I will have Social Security, Pension, IRA, 403B, Rothe IRA, Brokerage account and a side business for retirement. In addition, I can sell my paid off (by retirement) home or rent it out and generate more income.

  6. Keep in mind when they set the age for SS, most people didn’t live that long.

    • uclalien says:

      I was waiting for someone to mention this. Average life expectancy in the 1930s was roughly 61 years.

  7. Gary Thurber says:

    Great Story. I see people all of the time that are not set for retirement. This is a very good reminder that people need to rely on themselves and take the time to develop a plan for retirement income. Their plan also needs to make sure the budget is kept in check so that debts will be paid off before retirement. That could certainly help stretch those retirement dollars.

  8. I think the man problem with relying on SS is that the rules can be changed any time and that scares me when you are planning 2 or 3 decades out.

  9. Jenna, Adaptu Community Manager says:

    I’m not counting on social security. Hopefully it will be around when I retire (long time from now) but more importantly I hope to have saved enough that it’s just another perk of being retired.

  10. If you’re in your 40s or older, you can probably count on drawing your current calculated benefit or something close to it. 30s and younger? Probably not prudent to bank on your full calculated benefit. If you top out at the FICA contributions each year, while your benefit would like be the top $2500, decades from now, the fund is probably not going to be solvent and there will be a means test of some sort. Meaning what? If you’re responsible and save money elsewhere or continue to derive income in retirement, you won’t get your full benefit, so that someone who wasn’t as responsible or resourceful as you will.

  11. I’m planning for my retirement like the Canada Pension Plan and Ols Age Security will not exist. Technically, CPP *should* give me something, I paid into it. But OAS is a supplement for low income seniors – and I plan to have enough to not qualify for it.

  12. Victoria @Lend Not Borrow says:

    Great information! The topic on the availability of social securtiy in future years has stirred up mixed feelings and ideas. Personally speaking, I would hope the funds are available in my retirement years (I’m 29), but I think it’s better to pretend it won’t be and invest for retirement accordingly. If by chance social security is available, it will serve as a monthly bonus for me…maybe I’ll travel to Hawaii every month with the money *smile*

    Thanks for sharing!!!

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