According to the Social Security Administration, more than one trillion dollars were paid out in Social Security benefits last year. If you’re like most elderly Americans, you may find yourself relying on these benefits as your primary income source from month to month. But, with the cost of living, healthcare premiums, and average consumer debt balances rising, this begs some to question, “Is Social Security enough to live on alone?”. Below, we’ll dive into this topic a little deeper and uncover how you can get the most out of your Social Security benefits.
Can You Live on Social Security Alone?
In short, yes. It’s not out of the question. There are a select number of people who claim to maintain a decent standard of living on these monthly payments alone. However, if you’re like the majority of Americans who’ve reached full retirement age, Social Security by itself won’t cut it. Social Security retirement benefits typically make up around 40 percent of post-retirement income for the average earner. Yet, you need at least 70 percent of your former income to live comfortably.
Fortunately, there are a few tips you can follow and add to your retirement plan to make your monthly benefit amount go further and boost your source of income once you’re officially retired.
1. Contribute More Towards an IRA or 401(k)
Any financial planner will tell you it’s wise to open and start contributing towards a 401(k) as early as possible. The earlier you contribute, the easier it is to live the lifestyle you want post-retirement. However, if you’ve been delaying your contributions, it’s not too late. As of 2022, it’s possible to set aside $20,500 annually if you’re younger than 50 and $27,000 if you’re a 50-year old or older.
Individual Retirement Accounts (IRA) are similar to 401(k)s, but the contribution limits are much lower. Individuals under 50 can add as much as $6,000 a year, while those over 50 can go as high as $7,000.
2. Utilize a Health Savings Account (HSA)
Healthcare costs are soaring and will more than likely rise in the coming years. Many retirees often find themselves unable to pay for their healthcare needs as they age. A health savings account can help you pay for your Medicare premiums, co-pays, deductibles, and any other unexpected health emergencies thrown your way. These accounts are available to any taxpayer enrolled in a high deductible health plan. Best of all, the money goes in and is withdrawn tax-free if used for a qualifying medical cost. You can put as much as $3,600 a year towards an HSA account on an individual basis and up to $7,200 for a family plan. Limits increase by $1,000 for those 55 and older.
3. Delay Filing
Waiting to file may be beneficial if you’re otherwise healthy and can afford it. As mentioned previously, Social Security alone only covers about 40 percent of your former income when you reach full retirement age. However, delaying your Social Security filing can help you boost your benefits and increase your payouts. According to SSA.gov, retirement credits increase by a certain percentage each month you delay after reaching full retirement age. You can take advantage of these benefits up until your 70th birthday.
Whether you plan on claiming Social Security soon or a decade from now, it’s crucial to stay on top of your personal finance and retirement goals. At Royal Oak Financial Group, our income and Social Security planners have the knowledge and expertise to help you plan for the future and make the most out of your retirement years. Contact us today for more information!