Can Social Security Cover Your Retirement? A Simple Plan to Fill the Gap

Social Security is the bedrock of retirement income for millions, but it is not a retirement plan in itself. The baseline it provides is clear: the estimated average monthly retirement benefit for January 2026 is $2,071. For someone who earned an average wage throughout their career, this translates to replacing roughly about 40% of pre-retirement earnings.

This design is intentional. Social Security was built to supplement, not replace, personal savings and pensions. It acts as a foundational safety net, ensuring a basic standard of living. Yet the data reveals a significant gap between design and reliance. In reality, half of households over 65 rely on Social Security for 50% or more of their income. This heavy dependence highlights a system that many retirees simply cannot afford to live on alone.

The bottom line is straightforward. For most people, Social Security alone provides only about 40% of their pre-retirement income. That leaves a significant gap that must be filled by other sources. The thesis here is that a disciplined strategy for saving and investing is not optional-it is essential to bridge that gap and build a retirement that meets your actual needs.

The Gap: What $2,000 a Month Actually Buys

The average monthly Social Security check of $2,071 is a concrete number, but what does it actually buy in today's world? For many, it translates to a bare-bones budget. It covers the absolute essentials-rent or mortgage, utilities, groceries, and basic healthcare-but leaves almost no room for anything else. You probably won't have money for extras, whether it's treating your grandkids to ice cream or going out to lunch with friends for a weekly meetup.

This is the reality of relying solely on the average benefit. It's a foundational safety net, not a retirement lifestyle. A fulfilling retirement typically requires replacing 60% to 70% of your pre-retirement paycheck, not just 40%. The system is designed to replace a larger portion for lower earners, but for those who made more during their working years, the replacement rate can be even lower. This means the gap they must fill is wider, not narrower.

The bottom line is that living on just the average Social Security benefit leaves you financially stretched and unable to enjoy the retirement you've worked for. It forces constant pinching of pennies and limits your freedom. For most people, that $2,000 a month is simply not enough to cover the full cost of a comfortable, engaging life in retirement.

Building Your Income Engine: Specific ETFs for Retirement

The gap between Social Security and a comfortable retirement is real. The good news is that you can build a systematic income engine using low-cost ETFs. These funds act like a collection of dividend-paying businesses, letting you diversify your savings without picking individual stocks. The goal is to generate a steady stream of income that fills the shortfall, with each ETF offering a different strategy and trade-off.

Let's look at four specific options that balance yield, cost, and risk.

First, consider the Vanguard High Dividend Yield ETF (VYM). It aims for a yield of about 3.5% and carries a rock-bottom expense ratio of 0.06%. Its strategy is straightforward: it invests in hundreds of U.S. companies known for paying higher-than-average dividends. This includes giants across finance, tech, and healthcare. The fund's broad diversification helps spread risk, making it a fairly moderate option for retirees seeking income.

A close second is the Schwab U.S. Dividend Equity ETF (SCHD). It also has a low 0.06% expense ratio and targets a yield near 4%. What sets SCHD apart is its focus on quality. It tracks an index of the 100 highest dividend-paying U.S. stocks, but with a key filter: it screens for strong financials and consistent cash flow. Its holdings are concentrated in defensive sectors like energy, consumer staples, and healthcare, which tend to hold up better during market downturns. It's a solid choice for investors who want reliable income from financially sound companies.

For those willing to accept more complexity for a higher return, the JPMorgan Equity Premium Income ETF (JEPI) uses an options strategy to boost its yield to around 8%. It invests in large-cap stocks and sells call options against them. This generates extra premium income, which is why the yield is so much higher. However, this strategy caps the upside potential of the underlying stocks and introduces different risks. It's a more tactical play, suitable for investors who understand options and are comfortable with the trade-off between higher yield and limited appreciation.

Finally, no balanced income plan is complete without a core of steadier income. The iShares Core U.S. Aggregate Bond ETF (BND) provides this ballast. It invests in a broad mix of U.S. investment-grade bonds, offering a lower-yielding but more stable income stream. Its role is to reduce the overall volatility of your portfolio, acting as a counterweight to the stock-heavy dividend ETFs. This bond ETF is the foundational piece that helps smooth out the bumps in the market.

The bottom line is that these ETFs give you a menu of choices. You can build a portfolio that matches your risk tolerance and income needs, using these tools to systematically fill the gap left by Social Security.

Catalysts and Risks: What to Watch

The strategy of using ETFs to fill the Social Security gap is straightforward in theory, but its success hinges on watching a few key factors. The most direct catalyst is policy. The passage of the Social Security Fairness Act is expected to increase monthly benefits by $360 for eligible public sector retirees. For those affected, this is a significant boost to the baseline income, effectively narrowing the gap they need to cover. It's a potential windfall that could make the investment math easier.

Yet, the core risks are more about market forces and personal discipline. Market volatility and interest rate changes are inherent to any portfolio of stocks and bonds. When interest rates rise, bond prices typically fall, which can pressure bond ETFs like BND. Conversely, a sharp stock market decline can hurt the dividend-paying stocks in funds like VYM or SCHD. These aren't hypotheticals; they are the normal swings of investing that can impact the income stream you're counting on.

The biggest risk, however, is not market-related at all. It's the risk of underestimating the gap. The entire strategy only works if you start saving and investing early enough to build a meaningful portfolio. As the Vanguard report notes, workers with access to workplace retirement plans are nearly twice as likely to be on track for retirement. This underscores the importance of consistent contributions over time. If you wait too long, even a well-chosen ETF mix may not generate enough income to close the gap left by Social Security.

So, what should you watch? Monitor the progress of the Fairness Act-it could directly improve your starting point. Track your portfolio's performance, but remember that short-term swings are normal. Most importantly, keep your eye on your own savings rate. The strategy is a tool, but the real catalyst for success is your own disciplined, long-term commitment to building that income engine.