Experts: The First Thing You Should Do With Your Social Security Check

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It doesn’t matter if you’re 20 years old or 10 years away from retirement. No matter your age, it’s important to plan how you’re going to supplement your income and spend your money during your golden years.

For many soon-to-be retirees, this means making a plan for their Social Security checks as many Americans rely on Social Security for more than 90% of their income. However, on the other end of the spectrum is someone like Warren Buffett who 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 as they approach retirement. For those in good shape, 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.

For many, it’s a fundamental component of their financial plan they can’t afford to squander or misuse one dime of retirement income. That makes it important to carefully budget and spend your benefits wisely.

Here’s what financial experts say you should do first with your Social Security check.

The Most Basic Obligations Always Take Top Billing

Celeste Robertson, estate planning attorney and 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.

Priorities Can Change, So Stay Flexible

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.

Debt-Laden Retirees Should Prioritize Paying It Down

If past borrowing follows you into retirement, compound interest works against you just as your income drops off. Every dollar put toward reducing it before you retire 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.”

Those With Other Income Sources Should Concentrate on Cash Flow

Social Security was never designed to be the sole income source for retirees, no matter when they start collecting. However, many American retirees use these benefits as their main retirement fund.

For those who have money coming in from other places, they 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.”

Your Healthcare Costs Steer Your Benefit Allocation

After budgeting to cover your basic needs, you should next pay for your medical expenses.

Let’s assume that you’ll spend close to the national healthcare cost average for Americans 65 and older, which is estimated to be over $7,000 per year. If you spend close to this amount, it’s wise to dedicate the remainder of your check toward this expense.

It’s also important to plan for rising healthcare costs that your Social Security checks likely won’t cover. 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.”

Emergencies Follow You Into Retirement — Do You Have a Fund?

After you’ve paid for necessities and healthcare, you might only be left with a few hundred dollars a year if you get the average retirement benefit. So, what should you do with that leftover cash?

Edwin Cruz, owner of Prosperity Financial Group, tells his clients to set aside 10% to 20% of their Social Security checks to cover the unexpected. He also recommends adjusting this amount over time until the retiree has six to nine months of living expenses built up.

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.”

Legacy Goals Can Steer Your Decisions, Too

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.”

Speaking of children, don’t forget to claim them! If you claim retirement, disability or survivor benefits and have dependent children, you can file a claim for them, as well. A qualifying child can receive up to 50% of a parent’s full retirement or disability benefit and up to 75% of a deceased parent’s benefit. 

However, there’s a limit to the amount of money that can be paid to a family, with the maximum amount determined as part of every Social Security benefit computation. To qualify, a child must be either younger than age 18, age 18-19 and a full-time student in grade 12 or lower, or 18 or older with a disability that began before age 18.

Although this is not technically your Social Security benefit, it’s still an SSA payment that can help your family make ends meet.

When To Apply for Social Security

Since each retiree’s situation is different, it’s important to take stock of your personal finances and determine when to apply for Social Security benefits.

Even if you’ve just turned 62 and qualify for Social Security retirement benefits, it’s important to keep in mind that you don’t have to take them right away. In fact, for some people, waiting as much as an additional eight years is a smart financial move.

Why would anyone wait to receive the benefits they’re entitled to? In a word: money. The longer you wait, the bigger your monthly payment. For those born in 1943 or later, Social Security checks increase by 8% per year for every year of deferral after age 62, up until age 70.

“The age at which retirees start claiming 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.”

If you don’t need the money right away and have other income or savings to live on, do the math and see if waiting longer to draw your checks makes sense.

Final Take To GO: Professional Advice Can’t Hurt

The bottom line is that retirees must be mindful of how they allocate their retirement spending to make sure they can cover everything. In addition to basic necessities, healthcare and savings, there will likely be other expenses that your Social Security benefits might not be large enough to cover. This will be especially important to remember if benefits get cut in the future.

“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.”

Sources

• Celeste Robertson, Law Office of Celeste Robertson

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