Retirement Social Security

This Common Social Security Assumption Could Backfire in Retirement

Believing this could put your retirement plans at risk, but you can still change course.

By Christy Rakoczy Bieber , Edited by Laura Hohenstein

Updated May 24, 2026

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For anyone looking to avoid money mistakes that could hurt their retirement, falling victim to a common Social Security assumption is one of the biggest errors to steer clear of.

About one-third of Americans expect Social Security to be their primary retirement income source, according to the Transamerica Center for Retirement Studies. Many others expect it to be a major one.

There's just one big problem with that.

Social Security is designed to replace only about 40% of pre-retirement income, meaning a 60% income drop hits your household the moment you stop working. That's not a minor adjustment. That's a drastic lifestyle change.

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Social Security alone is likely going to fall short

Understandably, many people would assume that Social Security benefits are going to support them. After all, you work and pay into the system your whole life to earn your promised retirement benefits.

The reality, though, is that Social Security wasn't ever meant to be the only income you had to live on in your later years. As the National Council on Aging explains, Social Security was supposed to be part of a "three-legged stool" providing retirement funds.

Sadly, the other two legs are wobbly, or potentially even gone entirely. Social Security was supposed to work in conjunction with a:

A defined benefit pension plan, which is a pension where your employer guarantees you a set amount of income for life after retirement.
A retirement investment account, such as a 401(k) and an IRA account.

Unfortunately, many people don't have pensions anymore, and with Fidelity reporting that Baby Boomers have an average 401(k) balance of just $249,300 and an average IRA balance of $257,002, many people don't necessarily have enough savings either.

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How much of your income do you need to replace?

Generally, most financial experts advise that you need to replace around 70% to 80% of your pre-retirement income after you stop working. So, if Social Security covers 40% of pre-retirement funds, your pension, savings, or both need to cover the other 30% to 40%.

Sadly, if you assume you're good with just Social Security, you may not save enough to generate that other 30% to 40% of your income you'll need.

This could leave you struggling to cover even basic costs. In fact, the average retiree collects only $2,071 per month from Social Security, or $24,852 per year. Considering the government's poverty guidelines for a single-person family are $15,960, your Social Security income just barely gets you above the poverty level.

How can you build multiple income streams in retirement?

The good news is, you don't have to just live on Social Security. You can, and should, get income from other sources. This could include the following.

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Withdrawals from tax-advantaged retirement accounts

If you invest in a 401(k) or IRA throughout your working life, you get tax breaks — and potentially an employer match on the 401(k) funds.

A 401(k) usually offers a narrow range of investment choices, such as index funds or target date funds, while an IRA gives you more flexibility to invest in stocks and other assets of your choosing.

Dividend stocks

Dividends are distributions of company profits paid on a set schedule. If you invest in companies known for paying high dividends, you can get a steady stream of income coming in without having to touch the principal balance.

Bonds and CDs

These are low-risk, fixed-income investments that typically offer a lower ROI than investing in stocks. However, you typically won't lose money on them, unless you cash out before maturity.

You should increase the percentage of your portfolio that's in bonds or CDs as you get older, so you'll have assets that are accessible to live on in case of a market downturn.

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Part-time or full-time work

Working as a retiree can help bring in extra income and preserve your savings. Just be aware that there are work limits for Social Security if you haven't reached your full retirement age.

This means earning too much when you're not yet 67 (FRA for anyone born in 1960 or later) could cause a temporary pause or reduction in benefits.

What income sources make sense for you?

For most people, a mix of these options makes the most sense. For example, you might have some money in a 401(k), but also have money in bonds and CDs.

Finding the right mix of investments is called asset allocation, and one simple rule of thumb says to subtract your age from 110 and put that percentage of your portfolio in the stock market. However, you don't have to follow this guideline. You can create a personalized plan on your own.

Whatever approach you choose, though, you need to pick one or more of these other income sources to supplement your Social Security and make sure you have the funds for a secure retirement.

Bottom line

A stress-free retirement requires you to have a financial plan. If you expect that simply preparing to claim Social Security is all you'll need to do, you're going to have a rough time. If you don't have a pension, you'll need to make sure you have invested enough to replace the other 40% or so of your income that you're going to require to live comfortably as a retiree.

Investing in a tax-advantaged retirement plan like a 401(k) or IRA can be a good way to get the extra funds you need. So, start researching all your retirement investment account options today so you can better set yourself up for the future.

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