Ask Stacy: How Am I Supposed to Live on Social Security?

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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.

Nor is the money you’re going to receive from Social Security when you get there. You can get a rough estimate or a detailed one with your personal information any time you’d like from SSA.gov.

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.

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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.

About me

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.

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Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • marketfog

    I was a Federal employee for 28 years in addition to working in the private sector. I did not make SS contributions for 9 years because I was covered by Civil Service Retirement. Consequently, I have several zeros included in my 35 year SS calculation. I retired for SS purposes at the full retirement age, however I continued to work in the same job. Those additional 6 months added substantially to my monthly SS payment because it replaced one of those Zeros. I could go back to work today and replace more zeros and replace a few very low earnings years when I was a teen to increase my monthly payment from SS. I also had enough years to overcome the SS Offset. Another way to increase SS payments is to take voluntary Over Time when available.

  • Gars

    The majority of Americans will not save for retirement so the only solution (gasp) is for the government to take even more of our income as a form of forced savings and employer pension plans.

    People would howl at being forced to save more and employers would also complain, but we’ve clearly demonstrated our inability to do this for ourselves.

    http://www.harkin.senate.gov/documents/pdf/5011b69191eb4.pdf

    • Jason

      I disagree that employer retirement plans are a solution, in fact I believe they are part of the problem. The problem as I see is that employer based plans vary too much. A employer can put $52,000 a year or 100% of your salary into a 401K pretax. However an individual can only put in $17,500. Workers without a 401K can use an IRA but that is limited to only $5500 pretax. And of course people with 401K’s can also put money away in a IRA too. So a high ranking employee with at good 401K can save $57,500 a year pretax while the average Joe can only save $5,500 in an IRA.

      My idea is to get rid of 401K, Simple Savings Plan, etc and replace it all with an IRA with a larger contribution limit. That way everyone has the same chance to save regardless of where they work AND you don’t have to go through the hassle of rolling over a 401K every time you change jobs. I also don’t see why companies couldn’t put matching funds into an IRA instead of the 401K.

      • Gars

        You misunderstood my comments.

        If the government increases the Social Security contribution rate, both the employee and the employer will be contributing more to the system.

        The majority of people will not save enough for retirement. That deferred gratification is too far away. Only by mandatory savings will they have a better retirement.

        These are NOT employer retirement plans! These are the government approved retirement plans available to the businesses to offer their employees! As an employer, I have no say in the fabrication of these plans; the government makes all of the details. All I get is the complaints about them.

        My employees (ave $30 hr) do not want to save for retirement. I have to beg them to save the 3% so they get the 100% matching funds.

        Only by mandating further taxes will they actually save anything.

        • Sherrie Ludwig

          Tell me where your company is, so that I can apply if you are close enough. I would do any job, including file clerk for $10 an hour, to get a 401k with any matching. I am most skilled at customer service.

        • Jason

          The problem with the USA Retirement Funds in the Harkin Senate plan is that is just adds another layer on top of the current system. It does nothing to address the disparity that some individuals are allowed 10 times the tax differed savings as others. I also have issues with the funds being “conservatively managed” by “professional managers”. By investing conservatively it only guarantees low returns for all investors regardless as to their level of risk or years from retirement. Professional managers only take an 1 to 2% cut to return lower performance than an index fund. I have no doubt that Wall Street loves the idea of people being forced to invest with them.

          IRA’s already exist and work well. They give investors the option to invest as conservatively or aggressively as they want as well as to choose actively managed funds or index funds. The only thing missing is the ability to directly deposit money through payroll deduction and to up the yearly amount allowed to be saved.

          • faithandhonor

            AND… The politicos will find a way to borrow out any money saved for YOUR tomorrow, by YOU, and spend it on THEMSELVES and their CRONIES, just as they have with SS trust fund, the highway trust fund, etc. “Trust fund”, or any approximation of same is like dangling a bag of heroin in front of an addict. So this will NOT work.

          • Jason

            The USA Retirement Funds envisioned by the Harkin plan would not be held by the government. They are private funds held at private companies such as T Rowe Price, Fidelity, etc. The Harkin plan are simple creates a new classification of retirement fund similar to a 401k, or IRA.

            The Highway Trust Fund is not bankrupt from congress taking money out of it to spend on other things. The highway fund is broke because the Federal government spends more each year on roads than what they take in with the gas tax. The balance is made up out of the general fund and 2007 was the last year that tax revenue collected was enough to pay for transportation spending. In 2014 the Highway Trust Fund is budgeted to spend $45 billion on roads and transportation in the US but only take in $38 billion in taxes. The math doesn’t work, either we need to spend less money on transportation or increase taxes to pay for the spending.

      • faithandhonor

        Has anyone noticed that whenever the government wants more money from YOU, they express it in the tax code as a percentage (so they always get their “cut”, but when it’s a benefit to YOU, to let you keep more of YOUR money, it’s always in a dollar amount, usually NOT indexed to inflation, and worth much less to you over time as inflation eats up its value?

        It’s ALL a racket, people, ALL of it.

        • Jason

          No, I haven’t noticed that. You brought up an excellent example of a tax that isn’t a percentage. The federal gasoline tax is a fixed $0.184 per gallon. That rate was set back in 1993 when gas was $1.08 per gallon. If the gas tax would have been set as a percentage it would have been 20% back in 1993 and you would be paying a gas tax of $0.68 per gallon today instead of $0.18.

      • clark

        Just level the playing field. Make both/all retirement plans equal plus all with access to a Roth. It’s immoral to not have the IRA the same as a 401K. Why should an individual not have the same opportunity as a group. We’re all in this together, aren’t we?

  • Lorilu

    I agree that it might be helpful for people on Social Security to go back to work to help make ends meet. But where are they going to get a decent-paying job? If young people are having trouble getting work in this economy, not many employers are going to want to hire the 65-and-up worker.

    • Matt Austin

      There aren’t many young people these days who are willing to work for minimum wage, let alone anything under $12 an hour. Therefore, there are some jobs available that retirees could do, unless there is a change of heart from the younger generation.

  • grandmaguest

    Why oh why…or maybe I should say how, in this day and age (and for the last 20 + years) would a person believe that they would be able to live on just social security. It’s been talked about continually in the news, papers, and all over the place that SS is ONLY to be an added supplement to your other sources of income.
    The power of compounded interest is a great thing…..so all you younger people out there (and the older ones too)….start saving, investing in IRA’s, 401K’s, 403b’s, whatever it takes. Pay your bills down, don’t carry big credit card debt. Be financially responsible over the long haul. Remember there are no loans you can take out for retirement, so it is up to you. That is unless you have wealthy parents who will be leaving you a bundle as an inheritance…..but I assume that is a very small percentage of people.

    • Jason

      The best thing my wife and I did was start saving 15% of our income for retirement straight out of college. At that point in life we were used to being broke so we didn’t miss the 15% especially since it came straight out of the paycheck without us even seeing it.

      I tell the new engineers that work with me to do that same thing but most do not. Retirement is something too far off for them to think about. It also seems that most have a list of toys they are going to buy when they get that first “real” paycheck. Showing them the math that someone who starts saving at 30 and saves all of their working life will never catch up with someone that only saves from the age of 20 to 30 doesn’t seem to work either. It isn’t that they don’t understand the math, they do, it is just that they don’t have the discipline to deny themselves something today for a better life 40 years from now.

      • grandmaguest

        I agree that is an absolutely wonderful way to save. I started my grandson out investing as soon as he started earning money in his teens. We sat down an talked about finances and he has continued to this day (he’s in his mid twenties now) and I told him that if he put the maximum allowed in an (Roth) IRA and continued for 10 years he could stop and would have more than someone who started in their 30’s and continued until 65. I’m glad to see there are some financially smart people out there! Congratulations on being among the “smart” ones!!

  • Marda Rushing

    I have never heard anyone else mention what my husband and I did as we approached retirement, We bought a house we could afford to pay cash for ($30,000) – fortunately, we’re “old house nuts” – bought a car the same way (a 2003 Blazer which we keep in tip-top shape, and paid off all of our credit card debt, which wasn’t much to start with. We chose a town with low property taxes, and with homestead exemption and elderly credit, for the last several years the amount we’ve owed is $0. Our two social security checks amount to about $2400, and with no house payment or rent, no car payment, and no credit card debt, that goes a LONG way. We have the money to do what’s important to us. Each of us has, admittedly, chosen to go back to work after trying being really retired (BORING!), but it wasn’t because we had to.And every penny we make now goes straight into our IRAs, we don’t use it for everyday expenses. So don’t make it sound like one can only barely exist if they live on Social Security.

    • clark

      Hopefully you have 2 checks for a LONG time. It’s when it becomes one check that it can become an issue. Great job with the needs and the wants.