About 45% of single retirees and 21% of retired married couples rely on Social Security for more than 90% of their income. On the other end of the spectrum is Warren Buffett — he collects a monthly benefit check despite having a net worth in the billions.
The point is that Social Security means different things to different people. For many, it’s a lifeline. For others, it supplements an already comfortable income. For those in the best shape, it’s gravy they can use for charity or to fatten up their heirs’ inheritance.
But for most retirees, Social Security is a fundamental component of their financial plan that they can’t afford to squander or misuse. Here’s the first thing retirees should do when they receive their monthly check.
Estate planning attorney Celeste Robertson, owner of the Law Office of Celeste Robertson, works with retirees in managing their wealth and planning for the distribution of their assets.
She’s seen firsthand how Social Security can impact life quality and wealth retention — but none of that matters until they cover the fundamentals.
“The top priority for most retirees upon receiving their Social Security checks should be covering essential living expenses,” said Robertson. “This includes housing, utilities, groceries and healthcare. These basic needs should be addressed first to ensure a comfortable and secure retirement lifestyle.”
That said, each retiree’s circumstance is unique, and they should adjust depending on their situation.
People enter retirement with different levels of debt, savings, income, obligations and expenses. Those factors and others can shuffle the order of importance for those crucial first few dollars from your monthly benefit.
If past borrowing follows you into retirement, compound interest works against you just as your income drops off. Every dollar put toward reducing it is a dollar well spent.
“Retirees with significant debt, especially high-interest debt, should consider allocating a portion of their Social Security income toward debt repayment,” said Robertson. “Reducing debt can improve financial stability and reduce future interest payments.”
Social Security was never designed to be the sole income source for retirees. For many it is anyway, but those who have money coming in from other places must calculate how their benefits impact their monthly haul — and their tax obligations — before spending a dollar.
“If retirees have additional sources of income, such as pensions, part-time work, or investment income, they should coordinate their Social Security payments with these sources to optimize
their overall cash flow,” said Robertson. “It might involve delaying Social Security to maximize benefits or strategically timing withdrawals from retirement accounts.”
You can take a greatly reduced payment starting at 62 or accumulate credits to fatten your check until you’re 70 — or you might fall somewhere in between.
Either way, your strategy has to change with the amount of your benefit.
“The age at which retirees claim Social Security benefits can significantly impact the amount they receive,” said Robertson. “Delaying benefits until full retirement age or even beyond can result in larger monthly payments. Therefore, if financially feasible, delaying benefits can be a smart strategy.”
Housing — which is most retirees’ biggest expense — is a primary reason why there’s no one-size-fits-all formula for how best to spend your payment first.
“Retirees who own their homes outright or have low housing costs may have more flexibility with their Social Security income,” said Robertson. “They can consider allocating more funds to discretionary expenses or savings.”
Even with Medicare, staying well in retirement is hardly free — and that should factor into how you spend your benefits.
“As retirees age, healthcare expenses tend to increase,” said Robertson. “Allocating a portion of Social Security income to healthcare costs, including insurance premiums and medical bills, is crucial.”
Emergency savings are crucial to avoiding financial catastrophe in retirement, the same as when you were working. If your cash reserves are thin, plumping them up should be at the top of your list.
“Maintaining an emergency fund is wise,” said Robertson. “Retirees should set aside a portion of their Social Security income for unexpected expenses or emergencies to avoid dipping into retirement savings.”
Finally, the scenario can change if Social Security factors into your plans for distributing generational wealth.
“For those who want to leave a financial legacy for heirs, estate planning strategies should be considered,” said Robertson. “This may involve setting up trusts, gifting, or other wealth transfer methods.”
The preceding scenarios were generalized outlines that loosely apply to many retirees — but each situation has unique variables and details that can have lasting implications.
Consider using a portion of your payment for professional guidance — it might be the best money you ever spend.
“It’s important to note that the right priority may vary based on individual circumstances,” said Robertson. “Consulting with a financial advisor who specializes in retirement planning can help retirees tailor their approach to match their unique financial situation and goals.”
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