Editor’s Note: This story originally appeared on NewRetirement.
Living on Social Security alone is not only possible, but many retirees already accomplish that very feat every year. While the lifestyle associated with Social Security income isn’t exactly luxurious, it doesn’t have to equal rice and beans for the rest of your life, either.
How you make living on Social Security alone work for you will depend on a lot of factors, not the least of which is what you want out of life.
The advice from many retirement financial experts is pretty clear. To have a reasonably comfortable life in retirement, you need about $1 million saved. That’s the traditional guideline originated by financial planner Bill Bengen back in 1994, and it’s one that’s still embraced today.
But, let’s face it, most people simply don’t have anything close to a million dollars for retirement.
Fortunately, living on Social Security alone is possible. Check out some statistics and ways to make it work.
In fact, most Americans are closer to zero savings than $1 million
For most people, anything resembling $1 million is an unattainable goal. According to Federal Reserve SCF data, the average retirement savings for Americans ages 60 to 64 is $221,450. This level of savings — spread over a 30-year retirement — is close to living on Social Security benefits alone.
In a report by the Federal Reserve, “Report on the Economic Well-Being of U.S. Households,” many survey respondents said that they are not accomplishing any savings for retirement. The report finds that “31% have no retirement savings or pension.”
Most of the people surveyed plan to depend on Social Security, and the number goes up with age. While people under 30 typically show little confidence in Social Security, 92% of people over 60 plan for or already receive Social Security benefits.
The higher the household income, the more likely there is to be some retirement savings, according to the Federal Reserve report. In households with an annual income under $40,000, savings goals are more likely to be for emergencies. But with incomes over $100,000, retirement savings becomes more of a goal.
Some people plan to continue working through retirement, which can help provide a better retirement lifestyle. Lower-income people report that it’s harder to get by, and saving is more than a little challenging. Only 42% have any savings at all, while 89% receive Social Security benefits.
Social Security Administration estimates that many people live on mostly benefits
The Social Security Administration (SSA) estimates that of the over 46 million Americans receiving Social Security retirement benefits:
- 21% of married couples and 45% of single persons rely on rhose Social Security benefits for 90% or more of their income.
- And, 50% of married couples and 70% of unmarried persons receive 50% or more of their income from Social Security.
Social Security income varies depending on work history and when you start receiving benefits. The average monthly Social Security benefit in 2021 is $1,543. And, for context, the highest benefit receivable is $2,324 for someone who files at age 62 and $3,895 for someone who files at age 70.
So, what does that mean for annual income for a single household?
- A $1,543 benefit translates to $18,516 a year. (So, a married couple, both earning Social Security might earn $37,032.)
- At the highest possible payout level, $3,895 translates to $46,740 a year and more if both you and your spouse are earning. Not bad.
In 2021, the poverty threshold for households is $12,880 for single persons and $17,420 for couples. The poverty threshold is a guideline set by the U.S. government to indicate the least amount of income a person or family requires to meet their basic needs.
Depending on your lifestyle, living on earnings of between $18,516 and $46,740 a year might seem impossible or entirely doable.
If it seems daunting, here are some ideas for how to retire on Social Security alone.
1. Wait to start Social Security
If you have not yet started your Social Security benefits, the best thing you can do to live more comfortably on Social Security alone is to wait a while longer to claim your benefits.
Waiting means that your monthly payment will be bigger, giving you more money to spend.
If you have reached your full retirement age, which the Social Security Administration calculates at between 66 and 67 depending on the year you were born, you can access 100% of your benefits. For each year after that, up to age 70, your benefits increase by up to 8%, meaning you can access up to 32% more at age 70 than at age 66.
If those benefits are tapped before full retirement age, they will be reduced based on the number of months you receive benefits before you reach your full retirement age.
For example, if your full retirement age is 66, the reduction of your benefits at age 62 is 25%; at age 63, it is about 20%; at age 64, it is about 13.3%; and at age 65, it is about 6.7%, according to data from the Social Security Administration.
2. Share housing
You’ve probably seen more than one episode of the popular 1980s TV show “The Golden Girls.” The characters had a great idea: When you pool your resources in retirement, you can live a whole lot better.
When two or more people share a house and household expenses, the money goes further, whether you’re renting or sharing a mortgage payment.
There are loads of options to share housing and cut this expense: Rent out a room (or rooms) in your house, combine funds to buy a home with other people, or create some other kind of communal living.
Read more about the golden age of “Golden Girl”-style retirement living.
3. Consider relocating
Where you live is important from the standpoint of cost of living and housing prices.
Experts say that you should not spend more than one-third of your income on housing. That means if you are earning the average of $18,516 a year from Social Security, you can only spend $514 a month on housing.
The sale of a valuable home in an expensive town or state could more than finance a much more modest home in a less expensive area, plus give you a little leftover.
If you live in an area where goods and services are expensive, relocation to someplace where the cost of living is more comfortable is also worth consideration.
Where to go?
U.S. News & World Report says that these 10 states have the lowest cost of living and home prices in the United States: Indiana, Michigan, Missouri, Tennessee, Georgia, Arkansas, Alabama, Oklahoma, Kansas, and Mississippi.
And, moving abroad can be another great way to really cut your expenses.
Here are 14 tips for downsizing.
4. Live somewhere with a temperate climate
Heating and cooling can be expensive. Utility bills — especially in the heat of summer and the worst of winter — can be untenable on a tight budget.
Living in a more temperate location means less demand on one of the most expensive systems in any home, which is the HVAC unit.
5. Retire debt before you retire
Before retirement arrives, the less debt you have the better. Paying off debt entirely isn’t possible for everyone, but the less you owe the more you’ll pay out. This applies to credit cards as much as it does to your home and vehicle.
The NewRetirement Planner will let you see what happens to your finances with and without debt. It can be pretty interesting to model your own situation and experiment with different debt repayment plans.
6. Cut transportation costs
Transportation is purported to cost more than health care in retirement. According to the American Automobile Association, in 2016 it cost, on average, $8,558 per year to own and operate an average sedan.
I don’t think I need to say that $8,558 is hardly affordable on Social Security alone.
To cut transportation costs, you can:
- Walk or bike, if possible.
- Rely on taxis, Uber, or public transportation.
- Enroll in a car-share if available in your area.
Living on Social Security without any other income may make it impossible to do everything you want. However, retirement is an excellent time to take stock of what you have and what you want — you may just need to prioritize your wants.
If you know what is most important to you, you can set goals and figure out a way to achieve your number one priority.
It is very useful to get a clear understanding of exactly:
- How much you earn or will be earning
- How much you spend or will be spending in retirement
- Any financial assets you have and how you might be able to use them for retirement
You will want to consider your finances both now and well into the future. A simple retirement calculator can give you quick answers. Better yet, use the NewRetirement Planner to create a detailed and reliable long-term plan for your financial future. It is a proven method for getting on track and feeling confident about your money.
The NewRetirement Planner can help you find your path to financial confidence. Knowing exactly what you have and exactly what you need can enable you to make it all work.
9. Cut expenses
Try keeping a record — in a notebook, a spreadsheet, a software program, or on your phone — of every dollar you spend. Many people are surprised to learn how many little things add up over the course of a month.
Documenting your expenses might also help you see services you can cut. Do you need all those cable channels? Can you add milk to plain coffee instead of ordering a latte?
Here are 20 more ways to cut retirement costs.
10. Consider assistance
There are quite a few programs to help low-income seniors. Research indicates that only 25% of eligible seniors apply for benefits that are available.
11. Stay healthy and make good insurance choices
Some retirees spend more in their lifetime on out-of-pocket health care costs than they earn in Social Security. You can do a lot to cut those costs by staying healthy and by choosing supplemental Medicare coverage carefully.
Shopping around for the best supplemental Medicare plan should be done every year. Plans change. Your health needs change.
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