It’s crucial to prepare how you’ll supplement your income and spend your money throughout your golden years, whether you’re 20 or 10 years away from retirement. This entails developing a Social Security payment plan for many soon-to-be retirees.
According to the Bureau of Labor Statistics’ 2019 Consumer Expenditure Survey, Americans 65 and older spend an average of $50,000 per year on necessities like food, housing, transportation, and healthcare.
However, the average monthly Social Security payment for retired workers is $1,615.81, or $19,389.72 per year. If you plan to rely solely on Social Security in retirement, you’ll quickly learn that it won’t be enough to cover all of your expenses.
Nonetheless, you don’t want to use up all of your Social Security benefits. That’s why it’s critical to plan ahead of time and use your benefits wisely.
It is postponed
It’s crucial to remember that even if you’ve recently turned 62 and are eligible for Social Security retirement benefits, you don’t have to collect them right immediately. In fact, for some people, waiting an additional eight years may be a wise financial decision.
Why would somebody put off receiving benefits to which they are entitled? In a nutshell, money. The longer you wait, the more money you’ll have to pay each month.
Social Security benefits grow by 8% per year for every year of deferral after age 62, up to age 70, for those born in 1943 or after. If you don’t need the money right away and have other sources of income or savings, do the arithmetic to see if delaying your checks is a good idea.
Check Your Income History
The Social Security Administration calculates your Social Security benefit based on your greatest 35 years of earnings. You should double-check your Social Security income record before filing for benefits since any record can have inaccuracies or gaps.
Your payment could be permanently lowered by a large amount if the Social Security Administration misses one or two of your highest-earning years, for example.
Create an account to validate your Social Security number. This is where you may view your earnings history as well as other crucial details such as your projected retirement, disability, and survivor benefits. If you identify any errors, call the Social Security Administration at 1-800-772-1213.
Make a budget for your Social Security check on a monthly basis
According to Kimberly Foss, certified financial planner and founder of Empyrion Wealth Management, the first thing retirees should do with their Social Security check is double-checked that they received the exact amount.
It’s time to budget your payment after you’ve double-checked that it’s correct.
Before spending your Social Security benefits, Bill Kearney, CEO of Integrated Financial Concepts, suggests making a spending plan. Here’s how to do it:
- Consider your monthly expenses, such as rent or mortgage payments, food, healthcare, debt, and other living costs.
- Calculate predicted earnings and where they will come from.
- Expenses should be matched to predicted income sources. To put it another way, find out how much your Social Security payments cover compared to your pension or retirement account withdrawals.
Maintain a Balanced Budget
You’ll need to keep an eye on your outside earnings if you want to maximize your Social Security payments. If you are under the age of full retirement, your Social Security payment will be decreased by $1 for every $2 you earn over $18,960 in 2021.
If you reach full retirement age in 2021, your pension will be lowered by $1 for every $3 you earn over $50,520 until you reach full retirement age in the following month. There is no Social Security payment that decreases once you reach full retirement age.
Make Your Basic Needs a Priority
The next step is to divide your Social Security benefits. The CEO and president of Dedicated Financial Services, Leonard Hayduchok, recommends treating your Social Security check like a paycheck.
Use the benefits to cover recurring expenses like rent and groceries. According to the BLS study, adults 65 and older spend the following amounts on food and related housing expenses on an annual basis:
- $17,472 for housing
- $3,810 in utilities
- $6,599 for food
Although many retirees will not be able to do so, you should strive to set aside 60 percent to 70 percent of your annual Social Security earnings to cover these costs.
If your yearly benefits are the national average of $1,615.81 per month or $19,389.72 per year, 60 percent of your Social Security check — $11,633.83 per year — will not be enough to cover the expenses listed above.
Even so, it’s a good idea to devote as much money as possible to food and shelter. After all, these are your essential requirements; without them, you would not be able to live comfortably.
Keep in mind that once you’ve used your paycheck to meet these essential bills, you’ll most likely need to tap into your other sources of income to fund the rest of your expenses.
Retirees who have higher food and housing bills than their Social Security benefits should look for ways to save money. One possibility is to relocate to a city where you can live comfortably on Social Security alone.
Cover Healthcare Expenses With Your Social Security Checks
After you’ve budgeted for your basic needs, it’s time to pay for your medical bills. Assume you’ll spend around $6,833 per year on healthcare, which is the national average for Americans 65 and older, according to the Bureau of Labor Statistics.
If you spend close to this amount, it’s a good idea to put the rest of your check toward it. However, you should budget for escalating healthcare costs that your Social Security benefits are unlikely to meet.
According to HealthView Insights’ 2019 Retirement Health Care Costs Report, a 65-year-old couple who retired last year should anticipate paying $12,052 per year on Medicare Parts B and D, as well as supplemental insurance.
As you get older, the price goes up. The average 70-year-old couple will spend $16,068 on these products every year, $21,706 for the average 75-year-old couple, and $28,552 for the average 80-year-old couple.
Put the money you have left in your savings account.
If you get the typical retirement payout, you might only have a few hundred dollars left over after paying for basics and healthcare. So, what should you do with the money you have leftover?
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Prosperity Financial Group president Edwin Cruz advises his clients to set aside 10% to 20% of their Social Security benefits to meet the unexpected. He also suggests gradually increasing this amount until the retiree has saved up six to nine months’ worth of living expenses.
Following this plan, you should strive to save at least $1,825.91 every year until you reach your six to nine months’ worth of emergency savings, assuming you receive the typical retirement payout.
However, since you’ve already used your Social Security checks to cover other high-priority obligations, you’ll most likely need to look for other ways to supplement your income in order to save for an emergency.
Remember to File a Claim for Your Children.
You can file a claim for your dependent children if you are claiming retirement, disability, or survivors payments. An eligible child can receive up to 50% of a parent’s full retirement or disability benefit, and up to 75% of a parent’s benefit if the parent has died.
The amount of money that can be provided to a family, however, is limited, with the maximum amount established as part of every Social Security benefit calculation.
To be eligible, a kid must be under the age of 18, between the ages of 18 and 19, and enrolled full-time in grade 12 or below, or 18 or older with a disability that began before the age of 18.
Although this isn’t your Social Security income, it is nevertheless a payment from the Social Security Administration that can help your family get by.
Additional Expenses Your Social Security Benefits Will Almost Certainly Not Cover
To ensure that they can cover everything, retirees must be careful how they allocate their retirement spending.
There will almost certainly be other expenses that your Social Security income will not be sufficient to meet, in addition to basic necessities, healthcare, and savings. This is especially crucial to keep in mind if benefits are reduced in the future.
You’ll still have to pay taxes in retirement, for example. Depending on your financial condition, you may be required to pay taxes on your Social Security income, making it even more difficult to fund your retirement.
You’ll also need to budget for travel expenses and any vacations you want to take.
Even if Social Security isn’t enough to cover all of your expenditures in retirement, there are still methods to save money and earn money. You’ll increase your chances of having a pleasant retirement by doing so.