A reader just retired and is worried that her retirement income won't be enough. She should be.
As members of my generation, the baby boomers, start entering retirement in droves, more and more of us may ask a question similar to this week’s reader question:
I just started collecting Social Security retirement. If I’m having so much trouble living on my allotted amount now, at age 65, what’s going to happen later when I have real medical expenses and prices keep skyrocketing? — Patricia
I feel you, Patricia. About a year ago, I did a TV news story about why so many future retirees will face a tougher retirement than their parents did. Check it out.
Now, let’s address Patricia’s question, starting with a cut-and-paste from the article that accompanied the video above.
Social Security isn’t the problem
Social Security was never intended to be the American worker’s sole retirement plan. Rather, it was designed to keep Americans affected by disability, death of a breadwinner, or old age from starving. Here’s how the father of Social Security, President Franklin Roosevelt, described it in a 1938 radio address:
The [Social Security] Act does not offer anyone, either individually or collectively, an easy life — nor was it ever intended so to do. None of the sums of money paid out to individuals in assistance or in insurance will spell anything approaching abundance. But they will furnish that minimum necessity to keep a foothold; and that is the kind of protection Americans want.
And Social Security still provides that. As you saw in the video above, Social Security won’t be enough to keep me in my house. I pay more in property taxes and insurance on my Florida home in a month than my parents paid in a year. But would Social Security keep me alive? Yes. It will keep Patricia, and you, alive as well. But depending on where and how you live, just barely.
Where did Patricia go wrong?
Retirement isn’t a thief in the night; it’s a marching band that gets louder every time you blow out your birthday candles. Yet too often we treat it like Christmas, a date we know is going to arrive, yet somehow are always unprepared for. When you’re going to reach retirement age isn’t a mystery.
So Patricia shouldn’t be wondering at age 65 how she’s going to make it on Social Security. She knew, or should have known, this was coming.
But that’s the short answer. The longer answer is more complicated. Divorce, job loss, kids who need help, parents who need help, not making enough, not saving enough, illness, failure to plan, denial, those are just a few of the infinite reasons any of us could end up like Patricia.
Confession time: In some ways I’m no different from Patricia. I recently turned 59, and I still don’t know exactly what my retirement will look like. How can I? My income varies radically, and I don’t know how much longer I’ll work, so I can’t say how much more I can put away between now and then. Other than Social Security, I’ll be depending entirely on my savings for income. If interest rates are 10 percent when I retire, my savings will generate 10 times more income than if they’re 1 percent.
These and other factors make it problematic to plan effectively.
The point is that if you plan on retiring on Social Security alone, expect to have inadequate income. But unless you have a fat pension in your future or have saved millions, you’ll likely reach your golden years and still wonder whether you’ll have enough gold.
What should Patricia do?
If you reach retirement age and find you’re not going to receive adequate income from Social Security and don’t have enough savings to make up the shortfall, you’ve only got two choices: You can live in poverty or not fully retire. What Patricia should have done, if possible, was to maximize her Social Security with tips like these, from “13 Ways to Get More Social Security“:
- Work at least 35 years. Social Security benefits are calculated based on your 35 highest-earning working years. If you work fewer years, you’ll have years with zero income averaged in, which will lower your payout.
- Ask for a raise. If you experience a jump in salary, you’ll likely boost your future earning potential and may see an increase in your Social Security payments when you retire.
- Take a second job. The same logic applies: If you earn more each year, you’ll likely increase the amount you get in Social Security when you retire.
- Wait until full retirement age to claim Social Security. You can begin collecting Social Security benefits as early as age 62, but you might not want to. Your benefit will be reduced by 25 percent for life. To get your full payment, wait until you reach full retirement age, currently 66 for anyone born between 1943 and 1954. For those born between 1955 and 1959, the age gradually rises toward 67. For those born in 1960, it’s 67.
- Better yet, wait until age 70. If you can afford to wait until age 70 to claim Social Security benefits, it’ll pay off. Thanks to what the Social Security Administration calls “delayed retirement credits,” benefits increase 8 percent each year you delay tapping into Social Security, until age 70. So waiting until you reach 70 means about a third more income for life. If you took benefits early and regret the move, it might not be too late to fix it. You may be able to repay all the benefits you received so far and restart them at a higher level based on your age. But this policy isn’t as flexible as it used to be. For more details, check out this page on the SSA site.
Assuming Patricia can’t go back to work and reverse her decision to take Social Security now, her next best option is to earn extra money in retirement. We’ve also covered that before, in articles like “12 Weird Ways Retirees Make Money.” Select suggestions from that post:
- Tutoring. If you have a lifelong interest — literature, politics, history — you’re going to be an expert by the age of 66. Tutoring is a chance to share your knowledge and make decent money.
- Consulting. Have you had a career in the same industry for most of your life? Or have you worked jobs in different industries? You can make both angles work as a consultant.
- Knitting. If you knit, you can sell your wares online at websites like Etsy.com. Don’t know what to knit? Tell your customers you do custom knitting. Do you create your own knitting patterns? You can sell PDF copies of your originals and deliver them via email.
- Reverse antiquing. Do you have an old hobby collection, perhaps birdhouses or lamps, or lovely old pieces of china or furniture? Get price quotes from antique shops and sell your treasures to the one that offers the most money. Get the eBay app and compare what the shops are offering with what you can get online.
- Cleaning services. Are you a clean freak or an organization whiz? Why not start your own business? You could clean houses or help people organize their garages, attics and basements for a fee.
- Translating and interpreting. According to the Bureau of Labor Statistics, interpreters and translators make an average of $45,430 a year. You can find work-from-home gigs in this industry for translating documents or transcribing audio. Check a job-seeking site like Indeed.com, or search LinkedIn for open positions.
- Teach your skills. You likely have teachable skills. For instance, you’re an accomplished haggler if you routinely talk a salesperson into giving you a discount on items like cars and furniture. Ask your community center or library about being a guest speaker or teaching a class.
Got a question you’d like answered?
You can ask a question simply by hitting “reply” to our email newsletter. If you’re not subscribed, fix that right now by clicking here. The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’ve earned a CPA (now inactive), and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. If you’ve got time to kill, you can learn more about me here.