How to retire with Social Security as your only source of income

How to retire with Social Security as your only source of income

Most Americans have little or nothing saved for retirement, and they expect no pension. Fortunately for those folks, Social Security provides guaranteed income to many workers once they reach age 62.

Unfortunately, Social Security doesn’t cover much beyond basic living expenses. As of January 2021, the average monthly benefit paid to a retired worker was $1,546.80, or less than $19,000 a year, according to the Social Security Administration.

It is possible to retire on Social Security alone, but you’ll need to do some homework. The first thing to understand is that the Social Security system is endlessly complicated – topics such as spousal rights and second marriages will lead you down long rabbit holes.

There are many great books, websites and calculators that will help you make sense of Social Security. The AARP calculator is one such resource, and the Social Security site will give you personalized a report with estimates of your benefits.

In addition to working with professional advisors who have masterful understanding, it is 100% worth spending a minimum of 20 hours learning the system. Regardless of your net worth, those could be the highest paid and most financially impactful 20 hours of your life.

Consider testing your advisors by asking them to give you two or three examples of killer Social Security strategies that they have seen and one example of failure.

Lean toward the aggressive approach

Perhaps the biggest conundrum facing retirees is at what age to take the benefit. You can start as early as age 62, but you’ll take a big cut in your monthly check. Wait until age 70, and your benefit will spike.

Some stats from the Social Security Administration: If you retire at full retirement age in 2021, your maximum benefit would be $3,148 a month. However, if you retire at age 62, the biggest possible check would be $2,324. And if you retire at age 70 in 2021, your maximum benefit would be $3,895.

The wild card is that you don’t know at what age you’ll die. If you wait until age 70 to collect benefits and then pass away a couple years later, you’ve left money on the table.

Generally speaking, you can approach Social Security two ways: conservatively or aggressively. The conservative way is to take as much as you can as early as you can, knowing that it – or you -- might not be there in the future. The aggressive approach is to let the benefit continue to grow and take out a higher amount later.

It’s impossible to know which strategy is right; after all, the answer depends on your life expectancy and future politics.

However, the optimistic approach is the right one for most people. Unless you have a health issue, you will live longer than you think. As for political uncertainty, you can set that aside. Baby boomers vote, and they are unlikely to vote to reduce their own benefits.

Far too many people opt for the “take as much as I can as early as I can” approach. If you live until 90, that decision will cost you.

For healthy people with net worths of less than $10 million, the wisest approach is to not only delay benefits but also to maximize spousal benefits.
Social Security strategies

Here are 3 smart ways to approach Social Security:

  1. Delay taking your benefit. For Americans born in 1960 or later, the full retirement age is 67. You can begin taking your Social Security benefits as early as 62, but your benefits will be reduced for each year you take them ahead of schedule. On the other hand, waiting past age 67 will boost your benefit by 8% per year for each year you delay.

  2. Cut your expenses. Moving to a less costly home can boost your cash flow and make it easier to survive on Social Security. Do you need two cars now that you’re retired? Can you still afford expensive hobbies like boating or golf? If you’re making ends meet on just your Social Security check, you’ll need to make some tough decisions. And be sure to pay down credit cards and other high-interest debt before retiring.

  3. Consider moving. If you live in a metro area with steep housing costs, it could make sense to move to a cheaper housing market. Some adventurous seniors go an extra step by moving to Mexico, Costa Rica or another place where their Social Security checks stretch farther.


Learn More

Related Article: When to take Social Security
AARP Calculators


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