36% of American retirees say they collect less Social Security income than they expected — here's why that's a big problem and 3 tips to avoid it

When it comes to the notion of “expectation vs. reality” — especially as it applies to disillusion in retirement — numbers truly tell the story, as reported in a study by Nationwide.

In its December 2023 Nationwide Peak Retirement Survey Insights Report, the insurance and financial services company found that basic living expenses take up more than half (53%) of retirees’ budgets. Yet workers expect these expenses to average out at just 42%, and what’s more, Social Security payments in many cases fall short of what they hoped to see.

In more than a third of instances (36%), retirees reported that they receive less in Social Security benefits than expected, compared to the 9% who say they receive more and 56% who collect about what they anticipated. And that 36% could grow. Social Security is expected to run out of cash by 2033, at which point benefits may no longer be paid in full.

It's projected Social Security benefits would be cut by 23%. In dollars and cents, annual benefits would be cut by $17,400 for a typical newly retired dual-income couple, according to the Committee for a Responsible Federal Budget. That impact would amount to “a lot” for 71% of people in pre-retirement and roughly three-in-four currently retired (74%), per Nationwide.

That could spell big trouble for the next generation of retirees counting on Social Security to ease their financial burdens. Using the figure of $1,940 — the median amount for a rental in Chicago, as reported by Zillow — that $17,000-plus represents the equivalent of nine months of payments at today’s prices.

Yet retirees and those about to join them can do plenty to offset any cuts that might occur. Assuming that the U.S. House of Representatives and Senate fail to address the Social Security funding problem — hardly a far-fetched scenario in these days of gridlock and squabbling — here are three ways to head off any potential cash crunch.

1. Invest in an index fund

Billionaire investor Warren Buffett (who also happens to be 93 years old) has famously said of index funds that they’ll be part of his wife’s investment plan on his passing: In his 2013 letter to Berkshire Hathaway shareholders, he wrote: “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.” As the name implies, these funds follow the motion of a market and invest collectively in all the stocks the index contains.

2. Cut hefty expenses now

Regardless of where Social Security goes, inflation and rising expenses could cut into your retirement funds, especially if the markets that feed your 401(k) or IRA plateau. Think: Is it time to downsize from an empty and expensive home? Relocate to an area where the cost of living and taxes are cheaper? We also live in a consumerist society and at every turn you’ll encounter messages and subtle pressures to part with your money on things you don’t need — or necessarily want. Moneywise has a list of the top dream purchases retirees often regret.

3. Leverage hidden sources of income

You don’t have to take on a side hustle to unlock income from the resources you already have. Renting out a garage, parking space or spare room can make a major difference in your bottom line.