According to the government accountability office, the average amount of money most Americans manage to save by retirement is just $101,000, 11% of the amount that many advisors recommend. These statistics leave many individuals depending on social security benefits during retirement.
If you’re nearing retirement and worried that social security may not be enough to support you, there are still steps you can take to better your situation. There are several ways you can maximize the value of your social security payments to ensure you get the most out of them.
1. Delay the Start of Your Social Security Payments
As long as you are age 62, you can start collecting social security benefits. However, your benefit amount will be higher each year you wait, up to the age of 70. For each year you wait to begin withdrawals, your payouts go up by 8%. This increase continues until the age of 70. The total rise if you wait until age 70 is 32%, meaning your payouts will be 32% larger if you wait until age 70 to begin accepting payments.
Conversely, if you begin receiving benefits earlier than age 66, the amount is reduced based on the number of months you start receiving benefits early. For instance, if you start withdrawals at age 62, you can reduce your payments by 25%. At age 64, your reduction would be 13.3%, and 6.7% at age 65.
2. Split Housing Costs
This idea may seem somewhat unconventional, but the young people have it right: splitting housing costs means each person can pay half of what they would’ve paid if living solo. When you share your resources during retirement, you make it possible to live on a lot less. This arrangement works equally well whether you split a mortgage payment or rent. If you own the property, of course, it goes much further! Even if you choose not to share expenses, owning your home in full will make a big difference in retirement.
3. Consider Relocating
If the housing costs in your area are getting ridiculous, as they are in many urban areas, consider relocation as a way to save on retirement costs. In many places, rising housing costs outpace inflation, actual value, and income increases, leading to housing bubbles and affordability problems for many. In some cases, the same house might cost 4-5 times as much to live in merely due to its location. You can save a tremendous amount of money in your retirement years by living somewhere with more affordable housing.
The best part is that if you have a decent amount of equity in your current home, you could sell it and use the money to buy an entire home outright in a more affordable area, thus eliminating your mortgage payment. Even if your equity is insufficient to cover the full purchase cost of your new home, if the new home is a more affordable one, it could dramatically reduce your cost of living thanks to a much lower mortgage payment.
4. Choose a Location with a Mild Climate
The idea behind this is simple and related to the above point – if you choose to live somewhere where you don’t need to use a lot of heating and air conditioning, it can save you a tremendous amount on monthly utility costs.
These costs can eat up a substantial chunk of your social security check each month, so reducing them is a good strategy in general. Even if you can’t live somewhere with milder weather, consider investing in things like insulation and energy-efficient HVAC systems to reduce costs. You could also consider solar panels as a way to reduce electricity costs.
5. Get Out of Debt Before Entering Retirement
This idea may seem fairly obvious, but if you are still making debt payments on things like credit cards and car payments when you enter retirement, that will eat into your social security checks substantially. If you are unable to eliminate debt, try to reduce it by as much as possible. The lower your balances, the lower your monthly payments will be. Any reduction is an improvement.
6. Cut Expenses
Budgeting is essential in all stages of life, but when you are trying to live on just Social Security benefits, it can be critical. Consider creating a budget spreadsheet that contains items for every dollar you spend in a typical month. Then go through and assess each item to see if it is necessary. Consider whether you could trim back or replace it with a more affordable option.
Many people have countless cable channels they never watch. They may pay for a landline phone they never use, or lease a cell phone rather than owning a used one. There are countless ways to save money. Consider evaluating all of your monthly and annual subscriptions. You may have some you never use, others you’ve entirely forgotten about, and even more you didn’t know you were still paying.
7. Stay Healthy and Live an Active Lifestyle
While developing health problems during your senior years may seem unavoidable, the most common issues seniors face come from bad diet and lifestyle choices earlier in life. You can’t change the past, but you can decide to begin living a healthy lifestyle today.
Another key tip is to make sure you have a good health insurance plan. When you need medical care, it is best to have a health insurance policy with low out-of-pocket expenses balanced with a reasonably low monthly premium. A supplemental Medicare plan works well for many seniors.
Most Americans wait too late to follow good retirement advice. Don’t let that happen to you. With these tips and some good old-fashioned common sense, you can make the most of Social Security and any other income you can generate and enjoy a happy retirement. If you have any other tips for fellow retirees or people anticipating retirement, feel free to share them here in the comments below!