If you're coming up on your retirement date without a lot of money in savings, you're not alone. Many people struggle to build savings for retirement due to a variety of factors, from sluggish wages to medical bills and other unforeseen expenses that get in the way of steady IRA or 401(k) contributions.
But you should know that if you're planning to retire on Social Security alone this year, you may be setting yourself up for some pretty tough times ahead. Here's what your monthly income might look like -- and why it may not be anywhere close to enough.
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A pretty meager paycheck
The average retired worker on Social Security today collects $1,976 a month. That number takes this year's 2.5% cost-of-living adjustment into account.
On a yearly basis, that amounts to a little less than $24,000. And it may not be nearly enough to allow for a comfortable lifetime.
The Bureau of Labor Statistics says that as of 2022, average annual expenditures for Americans 65 and over came to $57,818. Based on this, the average Social Security benefit wouldn't even cover half of the typical senior's costs.
And while it may be that you have few expenses and intend to maintain a frugal lifestyle, there's a difference between frugality and having to sacrifice basic comforts like heat and ample food. You don't want to end up in a situation where you're dealing with the latter.
Alternatives to retiring on Social Security alone
If your retirement date is nearing and you don't have any money socked away in a dedicated savings plan, you may be inclined to resign yourself to a somewhat bleak future. But that doesn't have to be the case.
First, who's setting your retirement date? If it's you, pushing yourself to work an extra year or two could make a big difference if you're able to bank a little bit of savings during that time.
Just as importantly, for each year you hold off on claiming Social Security, up until age 70, your monthly benefits get a boost. So while retiring on Social Security alone is generally not optimal, if you're going to do that, you're better off with an increased benefit.
If you can't postpone retirement and it's too late to build savings, see if your home can come to your rescue if you own one. You have a few options here.
First, you could downsize to a smaller home and pocket the difference. From there, you could work with a financial advisor to invest your sale proceeds in a manner that generates income so you have additional funds at your disposal year after year.
Another idea is to rent out a portion of your home, such as a finished basement or garage. You could even potentially rent out your driveway if parking in your area comes at a premium.
Finally, don't discount the idea of working part-time once you retire. Whether it's a few shifts a week in person or some type of gig role, you're allowed to work while collecting Social Security. And once you reach full retirement age, you can earn any wage without risking having some of your benefits withheld.
Retiring on just Social Security may seem inevitable, but it's not ideal. So before you resign yourself to that fate, think about what it means financially and consider whether there may be a viable alternative.
