Can You Live on Social Security Alone?

Social Security benefits provide a good financial base, but they aren’t designed to be the sole source of retirement income. According to the Social Security Administration (SSA), these benefits should replace approximately 40% of preretirement earnings for the average worker.¹

So is Social Security enough to retire on? Living on Social Security benefits alone can be done, but it can create financial hardship for many people. If you are nearing retirement, consider what you can do now to ease your transition, and start looking for ways to supplement your income, now and after you retire.

Why Social Security Alone Is Not Enough for Retirement

Most people are comfortable with their standard of living before retirement and usually want to maintain it. In order to do that, financial advisors recommend people plan on having 70% of their preretirement income — and research shows that number might actually be closer to 80%.² If you currently bring home $80,000 a year, you’ll want to have somewhere between $55,000 and $65,000 a year, and Social Security alone just won’t cut it.

Something else to consider is that having more free time can easily mean spending more money. According to the Employee Benefit Research Institute³:

• 45.9% of households spent more in the first two years of retirement than they spent just before leaving the workforce.
• Six years post-retirement, 33.4% of households were still exceeding preretirement spending.⁴

Will Social Security Benefits Replace the Same Percentage of Income for Everyone?

Unfortunately, the answer is no. While the SSA tells us that Social Security benefits will replace around 40% of the income of the average wage earner in the U.S.,¹ keep in mind that this is an average and many people fall either above or below that number.

The government withholds Social Security taxes from your paycheck only up to a certain point ($132,900 in income in 2019 and $137,700 in 2020).⁵ That means the dollar amount you eventually receive in benefits could represent a lower percentage of your previous annual earnings.

Adjusting and Budgeting for a Comfortable Retirement

While enjoying life is the goal of retirement, setting and sticking to a reasonable retirement budget can help keep financial stress off your mind.

In addition to your standard living costs, it’s important to consider healthcare costs when planning your future expenses. A study by the Nationwide Retirement Institute estimated that an average American claiming Social Security benefits at the age of 62 could spend as much as 64% of their monthly benefit on healthcare.⁶ In this situation, you would have very little money left to live on if Social Security were your only source of income.

Adding to Your Retirement Income Before You Retire

If you haven’t yet, find out if supplemental savings plans are available where you work. Don’t hesitate to ask questions about what you are eligible for and how to maximize the amount you can get when you retire.

In addition to retirement savings plans that might be available through your employer, there are also plans available through financial institutions, and these are often tied to tax advantages.

How to Maximize Social Security Benefits After You Retire

One strategy could be to delay claiming Social Security benefits for as long as possible. Your full retirement age (FRA) is determined by the year you were born. If you claim your Social Security benefits before reaching FRA, you will have a permanent reduction in monthly Social Security income.

On the other hand, if you delay claiming, you earn delayed retirement credits that will permanently increase your monthly Social Security benefits up to age 70. Being able to wait could result in an increase of 24% or more to your Social Security retirement income.⁷

If you’re considering relocating after you retire, you may want to move to a state that doesn’t charge state taxes on Social Security benefits. There are currently only 13 states that tax a portion of your Social Security benefits. Each state has its own formula for determining tax rates, so make sure to learn what your local tax rate will be.

The states that do not tax Social Security benefits are:

Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin, and Wyoming.⁸

Overall, the best way to prepare for retirement is to know what to expect. Social Security benefits are calculated based on an inflation-adjusted wage average of your highest 35 years of earnings. If you’re earning substantially more at the end of your career than the beginning, you might want to consider retiring later.⁹ Find out about your benefits by creating a “my Social Security” account with the SSA.

If you are looking for an option to help manage your medical bills, consider financing through the CareCredit credit card. The CareCredit card is an easy way to pay for health and wellness care and offers promotional financing options.* To apply, go to carecredit.com/apply/.