I’m a Financial Advisor: 4 Things You Can’t Afford in Retirement If Social Security Is Your Main Income
Written by
Angela Mae
Edited by
Laura Bogart
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About 72 million Americans receive Social Security benefits. Not only that but the SSA found that roughly half of everyone age 65 and up receives at least 50% of their household income from Social Security benefits. For another 25% of older individuals, Social Security benefits constitute 90% or more of their monthly income.
All of this is to say that Social Security is a primary source of income for many retirees. But the program was designed to supplement one’s retirement income, not account for it in its entirety. Benefits aren’t always enough to cover even essential expenses, much less optional or nonessential ones.
GOBankingRates spoke with Steven Bosworth, managing director at Bosworth Financial Group, to find out what people who rely primarily on Social Security can’t afford in retirement. While everyone’s situation is going to be different — and this includes their cost of living — these are some of the most common ones.
Also, here are seven ways boomers are spending their Social Security checks.
Medical Care
The United States has the highest healthcare costs in the world. According to the most recent studies, Americans spend around $12,000 a year per capita on health-related expenses — nearly 40% more than the country with the next highest expenditure, Switzerland.
Older individuals tend to have higher costs, however. This is a major concern for many retirees, especially those with limited sources of income.
“Medical expenses can skyrocket and if retirees can’t afford medical care, they won’t get the proper treatment that they deserve,” Bosworth said.
It’s not just basic medical people have to worry about. While government-run programs like Medicare (federal) and Medicaid (state) can help offset costs, retirees often need to pay for some out-of-pocket expenses like monthly premiums and prescription medications.
T. Rowe Price estimated that the average retiree with traditional Medicare, Medigap and Medicare Part D (prescription drugs) will spend $900 a year. Around 10% of these individuals will spend $4,200 or more — though they might not do this on a yearly basis.
Even for those who don’t spend much on medical care each year can still struggle with certain expenses if they only have Social Security income. Generally speaking, Medicare doesn’t cover things like long-term care, cosmetic surgeries, dental care or dentures, eye exams or concierge care. For some, this lack of coverage puts these things out of reach.
Vacations
Bosworth said many retirees living on Social Security can’t afford vacations because “these retirees will need their Social Security for their living expenses.”
According to ValuePenguin, the average person — retired or otherwise — spends about $3,251 for a budget-friendly international trip lasting 12 nights. Domestic trips cost much less at about $581 for four nights. These figures include transportation, lodging, food, and entertainment.
The average Social Security paycheck is $1,918 as of June. That’s $23,016 a year. While a carefully budgeted domestic trip once in a while might fit into some retirees’ plans, international travelers could struggle to make the numbers work.
Car Maintenance
Owning a vehicle already can be expensive, especially for those with an auto loan. But even without a loan — and those required monthly payments — retirees on a tight budget might struggle with things such as insurance, gas, repairs and maintenance.
“Maintaining a vehicle can be expensive as the cost of repairs usually requires you to pay hundreds of dollars or more at one time,” Bosworth said.
CarInsurance.org put the average estimated cost of yearly maintenance at $1,200 to $1,800. Annual repairs for things like battery changes or new tires costs about $500 on average.
There are some ways to offset these costs, of course. One is to get a reliable vehicle that’s known for requiring very little in the way of maintenance or repairs. Another is to drive locally or infrequently so as to keep the wear and tear down. Depending on the situation, it might also make sense to get an extended warranty or coverage through a private insurance company.
Homeowners and Car Insurance
Last but not least, Bosworth said many retirees living on tight budgets forgo homeowners and car insurance because of the high prices — which always seem to be rising with inflation.
Auto insurance costs range depending on factors like coverage, location and the age and condition of the vehicle. It’s possible to spend hundreds of dollars a year on this.
Homeowners insurance costs as much as $2,600 a year in the U.S. for a home valued at $300,000. Even though rates vary by state and other factors, this is still a hefty sum for those who derive their monthly income primarily from Social Security.
Bottom Line
Living with Social Security as the main source of income can be challenging, but that shouldn’t let retirees from living the life they deserve.
For retirees who are already living in tight financial situations, Bosworth suggested looking into products from insurance companies that can benefit them. Examples of these might include car repair insurance or long-term care insurance.
Another option is to speak with a financial professional, but many professionals will charge fees for their services. If this isn’t in the cards, there may also be free local, state or federal resources available to ease the financial burden in retirement.
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