The idea of guaranteed Social Security checks in retirement is a comforting thought, especially for those who are struggling to save as much as they'd like right now. But a lot of people are also worried that Social Security won't be enough to cover all of their expenses.
Below, we'll examine that concern and talk about how to ensure you have the money you need for retirement.
How much money does the average senior household get from Social Security?
The average senior household headed by an adult 65 or older spends about $47,579 per year, according to the latest Consumer Expenditure Survey from the Bureau of Labor Statistics. It's worth noting this was based on 2020 data, so it's possible that pandemic lockdowns affected some people's spending habits, for better or worse. But nevertheless, it gives us a baseline to begin thinking about how much people might spend in retirement.
The same survey found that the typical senior household receives about $27,081 per year in Social Security benefits, or about $2,257 per month. That means Social Security covers about 57% of the average household's expenses. But that still leaves 43% uncovered.
It's important to remember these are just averages. Some frugal households might spend a lot less than the average, meaning their Social Security checks will go further, while others will spend much more. But it seems unlikely that most people can afford to live on Social Security alone.
That's a serious concern, particularly for those nearing retirement who are worried about their small nest eggs. To be honest, there isn't always an easy solution. But there are usually a few steps people can take to improve their retirement readiness.
How to ensure you have the money you need for retirement
It's best to take a two-pronged approach when trying to increase your financial security in retirement. You should do your best to increase your personal savings and your Social Security benefits, and the two often go hand in hand.
Save what you can: Making regular retirement contributions is extremely important, and you should always increase your contributions whenever you get a raise or pay off a debt. Sometimes, altering your budget can also allow you to save more for retirement. Claiming a 401(k) match, if you're eligible for one, is another way to take some of the savings burden off your shoulders.
Delay retirement: Though it's not always the ideal strategy, delaying retirement is another sound approach. By shortening the length of your retirement, you're also reducing its cost while giving your existing savings more time to grow.
Work longer: Working longer can also boost your Social Security benefit because it's based on your average income over your 35 highest-earning years. If you're earning more now than you did when you started out in your career, your more recent earnings will eventually begin to replace some of your past, lower-earning years. This will result in a larger Social Security benefit.
Delay claiming Social Security: Delaying Social Security also boosts your checks. You can sign up right away at 62, but you must wait until your full retirement age (FRA) if you want the full benefit you're entitled to based on your work history. Every month you delay benefits between 62 and your FRA increases your checks slightly. You can also continue delaying benefits past your FRA up to 70, and your checks will grow even further.
This means fewer years of benefits, but it also means the checks you do receive will be larger. It's a smart move if you can afford to delay benefits and you believe you'll live until your 80s or longer. Those who don't expect to live long will usually get more out of the program by signing up early.
If you're trying to maximize your Social Security benefits, you also have to make sure you're not missing out on any other benefits for yourself or members of your household. Spouses can qualify for benefits, even if they've never worked, as can minor or disabled children that a qualifying worker is responsible for. There's also Supplemental Security Income (SSI), which is available to blind or disabled individuals and low-income seniors who need some extra help paying their bills.
Everyone's situation is unique, so it's up to you to figure out the right combination of savings strategies that will enable you to cover your expenses in retirement. But it's important to know that you have options. Review the suggestions above and revisit your retirement plan, if necessary, to see how you can apply some of these tips.