Could You Live On Social Security Alone?

The experts say Social Security provides about 40% of the typical retiree’s pre-retirement earnings.

But that percentage varies a lot.  Lower earners receive a higher percentage of their earnings and higher earners receive a lower percentage of their earnings.

I write a lot about the importance of saving money for retirement because of this 40% statistic.  But COULD I live on my social security alone?  If I could, what would that life look like?

I went to the Social Security Administration’s Website to find out how much Social Security I should receive.  They have a fantastic estimator that allowed me to get my amount based on no earnings from now until my full retirement age of 67.  They tell me I should receive about $30,000 a year or $2,500 a month at 67.  It seems like a lot but it’s quite a bit less than I spend now.

For 2017, the highest Social Security payment is $32,244 a year for someone retiring at their full retirement age of 66.  If you worked for 30 years but earned very little, the lowest Social Security payment is $9,984 a year.

I was a high earner and I often reached the contribution limit.  But Social Security uses the highest 35 years’ earnings to calculate the benefit.  I only have 34 years of earnings–and some of those years I was in school and earned very little.

See Social (in)Security is Complicated! if you wonder why I’m counting on Social Security, how the benefit is calculated and links to great resources.

I don’t have an extravagant budget–but it’s pretty cushy.  I’m able to do everything I want and still stay within it.  Keep in mind, my budget includes replacing my car every 8 to 10 years and setting aside money for major maintenance items on our homes.

If I had to live on Social Security alone, I’d need to get out the hedge trimmers and wack away at that budget.

So here goes . . .

Well, vacations are out.  Vacations represent almost a quarter of my budget, if I need to live on Social Security they’re gone.

Our desert home is out.  I guess I can embrace the cold . . . That saves over 10% of my budget or I could embrace the heat and sell our mountain home.  That would save me even more.

Say goodbye to the boat.  At 67 I probably couldn’t hoist myself into it anyway.  Bon voyage!

Well, those were the easy ones . . .

How about my general spending category?  This covers groceries, clothing, entertainment, charitable contributions, this blog’s cost, hair cuts & color, dining out, etc..  I guess I could cut about a quarter of these things without too much heartache.  I don’t need a social life right?  With that awful hair, no one will want to hang out with me anyway.  That saves me about 5% of my budget.

Vehicle expense, I guess we could get rid of one car and Mr. Ms. Liz and I could share?  Togetherness and all that, right?  That’s gets me a bit more plus I would only be buying 1/2 a car every 8 years or so.

Property taxes and utilities . . . I guess it’s time to downsize.  That should save a bit.  And we could turn the heat down, it’s getting a bit too comfortable in here at 68 degrees . . .

Cell phone, I’m still on an expensive plan with my fancy iphone.  I’ll just get a phone at Wal-mart, that will work fine and I’ll save at least $400 a year.

Cable and internet, maybe I’ll just check out movies at the library and use their internet.

OK that just might get me where I need to be to live on Social Security.  Whew!  I DID it! 

As long as healthcare costs don’t go up.  And healthcare is a huge IF.

Oh, and Mr. Ms. Liz needs to live as long as I do or my utilities and property taxes double (we keep our money separate).  Oops he’s 8 years older than me so that’s not likely.  I’d have to get a roommate–hope that downsized house is big enough.

And what a life I’ve left myself–I think I’d rather go back to work.

Now lots of people thrive on $30,000 a year.  It’s a ton of money to support one person.  Check out the Frugalwoods for some inspiration.  But for someone who was accustomed to more extravagances, it would be a difficult shift.  Especially when you have all this time on your hands.  It helps to have a bit of money to create amazing experiences.  Scraping by is not how I envision my final act.

My social security will be a huge help with my finances but it won’t be my only support.

I saved a large portion of my income–over 30% of my net income in most years and as much as 70% as I got closer to early retirement.  Curious about my savings rate?  Read this.    Curious about how I’m funding my retirement? Read this.

So this was a fun exercise.  And fortunately, for me, it’s only an exercise.

If your Social Security provides only 40% of your needs, you’ll need to be saving and investing to fund the rest of your needs.  How much should you save?  Well, that depends on how long you want to work.

If you want to WORK 42 years, then saving 10% of your gross income into a Roth IRA or 401k is enough.  This would allow you to retire at a typical age–start at age 22, and you can retire at 64.

If working 42 years doesn’t sound fantastic, then ramp up your savings rate so you can reach retirement earlier:

Roth savings rate w SS

All calculations assume a 5% investment return after inflation, a 4% withdrawal rate in retirement with retirement expenses equal to your after savings take home pay.

If you’re savings is going into a traditional retirement account, you’ll need to save even more because the tax man takes a portion of your withdrawals.

I worked about 29 years and that still seems right for me.  I could have retired earlier if:

I was comfortable with more risk–would my life outlast my money?
or if we had been more frugal–life without some extravagances.
or if I had found this FIRE (financial independence/retire early) thing earlier–more focus would have produced better results

What seems right for you?  How many years do YOU want to work?  What’s your final act going to look like?  Are you stashing cash so it can be amazing?  Or will you be getting the hedge trimmers out to wack away at your budget?

I welcome your comments and questions.

 

Photo credit – Ms. Liz on Nakamun Lake, near Edmonton, Alberta, Canada

Author: Ms. Liz

A CPA, I retired at 51 and I am helping people create their fantastic futures!

12 thoughts on “Could You Live On Social Security Alone?”

  1. Great points, Ms. Liz. What influenced me the most has been watching my Mom struggle to live on mostly SS alone. What has saved her so far is that she was able to pay off her home, so she got a reverse mortgage (at her kids’ urging). She also has kids and grandkids to help. But it’s often stressful for her, particularly as healthcare costs go up. I don’t have kids, so can’t rely on that kind of help. So I’ve been mindful of not relying on SS alone. It is only one part of my retirement income plan. I’m like you, wish I would’ve become more aware of the FIRE idea earlier in life. But, sounds like you and your hubby have done great. We haven’t done quite as well as you all, but I think we’re better than most.

    1. Thanks Lisa. That has to be rough watching someone you love struggle financially. And it creates a lot of ripples one may not anticipate. I would think it could affect your ability to retire and the relationships with siblings who may be less willing or less able to help. I too have no children to rely on for help–but a niece and fake kids who have enhanced our lives tremendously. They won’t have to help us financially but will, hopefully, make sure we’re getting good care if we’re no longer good judges of such things.

      Hopefully the publicity about extreme early retirees is reaching those in their 20’s and 30’s. Being introduced to the concept of early retirement early and often would have been a huge benefit to me.

      We all could have done better–congratulations to you for creating a nice life for yourself!

  2. Solid post. I’ve always thought of SS alone as kind of a subsistence-level income: food, shelter, water, power, and not much else. What I’ve seen is that, in reality, many retirees that did not save up for retirement wind up being helped by their kids; when there are no kids or they do not help, a “subsistence poverty” ensues. It’s very sad and seems to accelerate deterioration in health and quality of life.

    All of this emphasizes how critical it is to save for retirement.

    1. Thanks for stopping by Miguel!

      I hope this is eye opening to my younger readers–one more message to help them understand the importance of saving for their retirement.

      Because I lived on only 35% of my take home pay during my final working years, I could have easily assumed SS would be enough. I’m pleased to know I could survive on it but even more pleased that I stockpiled money so I wouldn’t have to.

      You make a great point about the impact of poverty on health and quality of life for seniors. It’s terribly sad and often preventable.

  3. I like to think of social security as a nice bump to the pay. Not something I can truly rely on in retirement, but something that can provide an extra boost. It would be hard to live just on social security and I am always amazed of people who have it as their go to plan. Those people unfortunately are typically low earners and likely will take home less social security then you are talking about.

    1. I agree that you shouldn’t rely on SS at your age though I do expect there will be something there for you.

      My hope is that I can get some of my readers your age to prioritize savings over stuff that doesn’t enhance the quality of their lives.

      In my previous job, I saw the payroll and it was shocking how many people didn’t participate in 401k yet were taking international vacations and driving new cars. Or, worse yet, people who earned six figures, no longer contributed and took out multiple 401k loans. I’m not sure when it will be convenient to look after their futures.

  4. Wow, it would be tough to live on just SS but we could if we needed to. One interesting thing though is the percentage that SS will cover for us. I was a high earner so I’ll get the max and my wife who was a stay at home mom, will get half so we’ll get over 50K at full retirement age. I’m estimating we’ll spend about twice that so even though we were high earners we’ll be getting a higher percent(50%) of our living costs from SS than lower earners. I’m already early retired so I know exactly what our lifestyle costs and that’s with me buying expensive medical insurance at full price. My costs will actually go down when we become Medicare eligible. While I earned a lot we never spent like it. We avoided lifestyle inflation and that made early retirement possible.

    1. Oh, and one more thing. What’s this about barely being able to get around at 67? My wife and I are in our sixties and we both run 18 miles a week and play competitive tennis almost every day. We can still slaughter the high school tennis team players so don’t assume that you can’t be just as active in your sixties as in your younger days. Next week we are driving to Nebraska to see the eclipse and then on to Colorado to see how many 14,000 foot peaks we can hike up after that. We might have a few more aches than we would have twenty years ago but there isn’t anything we are too old to do!

      1. Don’t worry! I’m not expecting to be inactive at 67. Camping off a boat requires quite a bit of strength and dexterity and my comment was just a joke to make me feel better about giving up that boat!

        Some of my best buddies are in their 70’s–one of them, until recently, could kick my butt on a mountain bike. I’m sure once he heals from his road bike accident I’ll be chasing him on the trails again. I also chase a bunch of 70 year olds around the pickleball court and am constantly amazed at their ability to kick my 52 year old butt.

        Enjoy your travels–Mr. Ms. Liz is heading to Nebraska for the eclipse also–keep your fingers crossed for clear skies.

    2. Having a stay at home spouse is a great way to maximize your return on SS contributions!

      Good point that costs should go down for early retirees once they reach 65. Depending on what happens to Obamacare, that may be true for us as well. Currently the fabulous taxpayers pay the bulk of our health premium because we are low income. It’s absurd given our net worth but the government hasn’t figured out a way to means test these benefits based on assets. So we’ll keep filling out our tax returns and getting most of our premiums back until something changes.

      Like you, we earned a lot and lived on much less. Avoiding lifestyle inflation and debt was our secret to early retirement and a really fabulous life.

  5. Ms. Liz first of I must say that I would still be your friend even if you had to nix your hair care budget and ended up with bad hair! This is giving me some things to think about- I think it’s time for me to look into a Roth IRA and see how I can increase my % of savings each month. I plan on retiring early and don’t want to have to wait for SS or being able to withdraw from my 401K without penalty. Thanks for you continued advise and important info.

    1. Great to know I’ll still have a friend in you and thank you for your kind words!

      Roth would be good and just a regular old investment account that isn’t a retirement vehicle. That would give you the most flexibility in early retirement–traditional retirement, Roth retirement and non retirement assets. Have a look at my How I’ll Fund My Retirement post and you’ll see the majority of my spendable net worth is not in retirement accounts.

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