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For many Americans planning for retirement, Social Security is very top-of-mind. Created in the 1930s, Social Security is meant to provide economic security for Americans. But is it enough to support the lifestyle of your Golden Years? If you plan to live solely on Social Security after your working days are over — keep reading. We’ve got some things that you may want to consider!
How Social Security Works
For every paycheck you receive, a portion goes to OASDI, or Old Age, Survivors, and Disability Insurance. All of those Social Security contributions go towards people collecting Social Security now. By the time you start collecting Social Security, you’ll be collecting from other people’s Social Security contributions — and the cycle goes on.
The longer you work, the more money you make. And the more money you make, the more you contribute towards Social Security. One way or another, your Social Security benefits will reflect your contributions from throughout your lifetime.
So, when should you start collecting Social Security? You can start claiming benefits between the ages of 67 and 70. However, should you need Social Security early, you can claim benefits as early as 62. But it’s important to note that the sooner you claim Social Security, the fewer benefits you’ll receive.
Social Security By the Numbers
The Social Security Administration estimates that of the 46 million Americans who receive Social Security:
- 21% of married couples and 45% of singles rely on Social Security for 90% of their income, and
- 50% of married couples and 70% of singles rely on Social Security for 50% of their income.
With this information, we know that it’s possible for some to live off of Social Security alone in their retirement, but this may not be the best option for everyone.
Why Social Security May Not Be Enough
The average monthly social security payment in 2022 for those collecting at age 65 was $2,484, but this amount can vary. Some may draw as little as $1,000 per month, while others may take home $3,000 per month. The problem is that most people receive amounts that are barely above the poverty line. Additionally, the Cost-of-Living Adjustment (COLA) doesn’t account for cost increases retirees experience. The buying power of Social Security benefits has fallen by 30% and will only continue to fall.
There are a few factors to consider that affect the amount of Social Security you can collect:
- Your lifetime earnings are used to calculate your monthly payment amount.
- If you start drawing Social Security before retirement age, your monthly check will be lower.
- The longer you wait to start getting your Social Security check, the more money you’ll receive each month.
Without knowing what amount your Social Security check will be each month, it’s difficult to say whether or not it alone will be enough to support your lifestyle. For example, if you get a check for $1,500 per month, this comes out to around $18,000 per year, which is insufficient for most people. It’s important first to create a budget that will reflect your needs during retirement; then, you can see what percentage of that budget can be covered by Social Security.
Social Security is meant to supplement pensions and retirement savings, not replace your income. It’s recommended that retirees bring in 80 to 90% of their pre-retirement income annually to live comfortably. Retirees only get 40% of the recommended amount from Social Security according to the Administration.
According to a 2022 Gallup Poll, 40% of people reported that they worry a significant amount about Social Security, and 31% reported worrying a fair amount. As it currently stands, Social Security funds are set to be depleted by 2035. This statistic is concerning for many — and reasonably so. Social Security currently keeps 18 million Americans over the age of 65 out of poverty. If Social Security doesn’t continue to evolve and stay intact, those people will struggle to stay afloat financially.
Supplement Your Retirement Income
Generally, most financial advisors agree that seniors need more than just Social Security to live comfortably. To bring home a liveable income in retirement, it is best to supplement that income with money you’ve saved while working. That means that preparation during your working years is crucial! A few ways that you can save before retirement include:
- Contributing to an employer-sponsored retirement account, like a 401(k)
- Opening an IRA or Roth IRA
- Investing in CDs
- Contributing to a retirement-specific savings account
Making the Most of Your Social Security
If your retirement plan is largely dependent on Social Security, there are several steps you can take to maximize the benefits you’ll receive.
- Wait to claim Social Security.
While claiming Social Security early may sound appealing, it’s in your best interest to delay claiming it as long as possible. The monthly payments you receive will be significantly higher if you start claiming at 70 instead of 62.
- Withdraw your application.
You may have already applied for Social Security and started receiving benefits. But if you change your mind and want to wait a little longer, you have 12 months to withdraw your application after submitting it. All you have to do is repay, without interest, any benefits you have received so far. If you don’t want to or are unable to repay the money you’ve already received, you can wait until you reach full retirement age and then suspend your monthly payments. With this option, you can earn up to 8% more annually until the age of 70.
- Maximize survivor benefits.
When a member of a married couple passes away, the widow or widower can receive survivor’s payments. This means the surviving spouse will receive their partner’s benefit payment if it’s more than their own. To increase this amount, the highest earner in a couple should delay claiming Social Security until age 70.
- Eliminate debt.
If you have credit cards or a mortgage to pay off, make sure to do so before your salary stops. This step gives you one less thing to pay for using your Social Security checks.
- Move to somewhere less expensive.
The cost of living is different in every state, from taxes to basic utilities. There’s a reason a lot of retirees move to warmer places. The cost of heating a house is more than cooling one, so you’ll save money on utilities by moving somewhere warm.
Retirement can be hard to plan for, especially if you’re not sure if Social Security will be enough to cover your cost of living. But the good news is that there are many ways to supplement and make the most of your Social Security benefits. Here at Spero, we are ready to help you plan ahead for retirement, so you can be confident about financing your Golden Years.
This material is for educational purposes only and is not intended to provide specific advice or recommendations for any individual.
