Allen R. Smith says he never planned to retire. He earned a degree in exercise physiology, spent a decade in the wellness industry and worked as a ski instructor in Colorado. When he reached retirement age, he planned to pursue a second career as an author and columnist.
“Years ago I vowed I would never end up in the situation I am in now,” said Smith, who lives in Oceanside, California. “My goal was to work until the day I quit. What I wasn’t prepared for was reality. I lost my house, went through my 401(k), and almost all my savings in 2008 during the economic crash.”
“COVID-19 hit,” he continues, “and since then it’s been difficult to find the kind of work I enjoy. I live a modest life, mainly on social security benefits, but not necessarily by choice.”
Smith is just one of about 51 million Americans age 65 or older who receive monthly Social Security benefits. According to the Social Security Administration, a percentage of these beneficiaries rely on Social Security for 90% or more of their income.
Many recipients experience “more month at the end of the money” and have to postpone some bills or pay only part of them. A recent study by Madelaine L’Esperance, now an assistant professor at the University of Alabama, shows that financial problems are increasing as the days pass since the last audit.
Social Security benefits are paid based on each recipient’s date of birth: those born in the first ten days of a month receive their benefits on the second Wednesday of each month; those born in the second ten days receive benefits on the third Wednesday of each month; the remaining beneficiaries are paid on the fourth Wednesday.
Read more: “What if I live too long?” Five things to know about taking Social Security at age 62.
Cash flow mismatch
Retirees who receive their benefits at or around the time their rent or mortgage are due are likely to use that money to pay for housing. If their benefits arrive earlier in the month, they will likely use the money for utilities, food or other bills, and may find themselves short when rent or mortgage payments are due.
Teresa Johnson (not her real name), 63, plans to live on Social Security benefits in a few years. She recently transferred her retirement savings from a 401(k) to a regular savings account so she would have easy access to cash in an emergency. She had to pay income tax on the transferred savings, but her peace of mind was worth it.
“It took away the fear of what would happen if I went freelance without work. Fortunately, that has never happened,” says Johnson. “I also knew that if I just made the regular payments, my house would be paid off by the time I was 66 years and 10 months old, my full retirement age.”
Johnson, who lives in a modest 9,000-square-foot home in Kansas City, Missouri, calls herself “naturally frugal.” Her retirement plan includes reducing her expenses by paying off her car loan, enrolling in Medicare and staying free of credit card debt.
Read: Call it the baby boomer effect: America is aging faster than ever, what does that mean for everyone else?
One person’s plan
“I plan to live on $2,400 a month in Social Security benefits,” Johnson says. “I live in the Midwest, which is significantly cheaper than other regions of the United States. I’m also growing my emergency savings; there is now only about €1,000 left in it. I’ve had a number of financial emergencies, medical bills for an ER visit, a $1,000 vet bill, and about $5,000 in home repairs in 2022.”
From the archive (Nov. 2021): This couple retired two years ago and earned about $27,000 a year. Here’s how that goes
Johnson can increase her benefits by maximizing her income before filing for Social Security, says Chuck Czajka, founder of Macro Money Concepts in Stuart, Florida, and holder of a Certified in Social Security Claiming Strategies (CSSCS) designation.
“Social Security benefits are calculated based on your 35 best years of earnings, indexed for inflation,” Czajka adds. “However, you can maximize by delaying. For every year you exceed your retirement age, your benefits increase by 8%. You can do that until you’re seventy.”
After receiving Social Security benefits, recipients can work part-time, but there may be limits on income earned depending on the recipient’s age or the amount of additional income.
Johnson says she plans to continue freelancing after her retirement. She also sits pets through a national pet sitting service and currently earns $500 to $1,000 per month in additional income. “I will continue petting as long as I can,” she says.
A recent study by Edward Jones identified ways that older adults can retire even if they have no savings and rely on Social Security:
- Stay Fit. Exercise, mental stimulation and a healthy diet can improve quality of life and prevent financial strain from medical bills.
- Set financial boundaries. The survey shows that pre-retirees are more willing to limit financial support to family members and donations to organizations and heirs.
- Expand social circles. Isolation can cause physical and medical problems as we age, so it’s important to spend quality time with loved ones and building your personal community.
- Tighten your belt. Seek advice from trusted individuals on ways to increase your savings, reduce expenses and reduce debt.
Also see: I’m 66, get $26,300 a year in Social Security, and want to live in a small town by the ocean – so where should I retire?
Aim for free money
Smith says he’s looking into discounts for older adults in his area so he can spend less. “California is an expensive place to live, but I enjoy the savings on food, cell phone service, utilities, internet and more,” he says. “The Veterans Administration takes care of all my health care. It’s tough, but I’ll make it.”
The National Council on Aging offers an online tool, BenefitCheckUp, to help older adults learn more about the benefits they may qualify for, including food, utilities and transportation.
“I enroll in Medicare and can afford the low-cost Medigap or Medicare Advantage plans,” says Johnson. “I will also have to set aside money for homeowners insurance and property taxes.”
“I’ve always lived within my budget, so I don’t need to have every possible luxury when I retire,” she adds. “I have a cute house in a nice neighborhood and I have good friends. That is what is important to me.”
Rosie Wolf Williams is a freelance writer whose work has appeared in USA Weekend, Woman’s Day, AARP the Magazine and elsewhere.
This article is reprinted with permission from NextAvenue.org©2023 Twin Cities Public Television, Inc. All rights reserved.
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