Dave Ramsey raises red flag over Social Security | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Social Security pays monthly benefits to millions of retired Americans. And for 40% of seniors, it’s their only source of income, according to the National Institute on Retirement Security.

But with the average retired worker collecting just $1,979 a month in Social Security, relying on benefits too heavily puts seniors in a position where they risk struggling financially.

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The average U.S. household aged 65 and over had $57,818 in annual expenses as of a few years ago, according to the Bureau of Labor Statistics. Even in households where two people are collecting Social Security’s average retirement benefit, there’s a serious risk of a shortfall in the absence of outside income.

Unfortunately, Americans on a whole sorely lack retirement savings. AARP notes that 20% of Americans ages 50 and over have no money set aside for retirement whatsoever. And Federal Reserve data points to a meager $200,000 as the median retirement savings balance among Americans aged 65 to 74.

But as much as an overreliance on Social Security may already be hurting older Americans, Dave Ramsey warns that things could get even worse in the coming years.

Dave Ramsey warns Americans on Social Security.

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Ramsey warns not to fall back on Social Security

Social Security will replace about 40% of the typical earner’s pre-retirement wages if the program manages to keep up with its scheduled benefits. But Dave Ramsey warns that it’s a very big “if.”

In the coming years, baby boomers are expected to retire in large numbers and start filing Social Security claims. As this happens, there will be fewer replacement workers entering the labor force, putting a huge strain on the system.

Social Security will therefore need to tap its trust funds to keep up with scheduled benefits. But Ramsey warns, “The year 2035 is shaping up to be a big year for Social Security…That’s the year Social Security’s trust fund reserves are expected to run out of money if nothing changes.”

Once Social Security’s trust funds are depleted, future beneficiaries may be in line for reduced payments. And current retirees could see their benefits slashed, too.

Lawmakers can intervene to prevent Social Security cuts. But solutions to that problem tend to introduce new ones.

One option is to raise Social Security taxes so more money flows into the system. But that’s unlikely to sit well with working Americans who are barely able to make ends meet based on where tax rates sit today.

Dave Ramsey’s advice is crucial for today’s workers

Ramsey doesn’t mince words in the context of Social Security.

“We can’t depend on Washington to take care of us in retirement,” he insists. “Do you really want to put your retirement dreams in the hands of the government? Heck no!”

That’s why Ramsey cautions today’s workers against relying too heavily on Social Security and suggests that they work to build savings instead. Fortunately, a good number of private sector workers have access to an employer-sponsored retirement plan. And for those who don’t, there are IRAs.

Funding a retirement account at a relatively young age gives workers time to benefit from compounded returns on their investments. It also allows them to enjoy a smattering of tax breaks in the course of building retirement savings.

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This isn’t to say that workers today need to write off Social Security completely. But Ramsey insists they should be cautious about falling back on benefits to take the place of savings.

“If you end up getting retirement benefits when you decide to retire, that’s great,” Ramsey says. “Any money you get from Social Security should be considered icing on the cake. But making Social Security the main ingredient of your retirement plan? That’s a recipe for disaster.”