9 Signs You Won’t Be Able To Live on Your Social Security Check
Written by
Jordan Rosenfeld
Edited by
Chris Cluff
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The time to plan for retirement is as soon as possible. However, some people may struggle to save or invest money, common strategies for growing a retirement nest egg.
In this case, if you’re planning to retire on Social Security alone, you’ll need to know if that’s going to be realistic or possible for you to do. Financial experts explain the signs that you won’t be able to live on your Social Security check alone.
Inflation’s Impact on Purchasing Power
Tyler Meyer, CFP and president of QED Wealth Solutions, described inflation as “a silent killer in retirement,” adding that Social Security cost-of-living adjustments are often “eaten away by the increase in medical cost and your discretionary spending erodes over time.”
If your retirement horizon is long, you’ll be dealing with potential erosion of purchasing power, according to Skyler Fernandes, financial advisor and general partner at VU Venture Partners.
He said, “Supplemental income sources that can better withstand the impact of inflation may be necessary for a secure financial future.”
Not Considering Tax Implications
Many retirees are unaware that a portion of their Social Security benefits may be subject to federal income taxes, depending on their overall income, Fernandes explained.
If you find that a significant portion of your Social Security is being taxed, it’s a sign that your overall income might be better diversified.
He said, “Exploring tax-efficient withdrawal strategies and optimizing your income sources can minimize the tax bite.”
Unforeseen Economic Shifts
Economic conditions can impact the sustainability of Social Security benefits, Fernandes said, explaining that, while the system is designed to endure, “unforeseen economic shifts or policy changes could influence the adequacy of future benefits.”
He recommended considering alternative income sources, such as investments with potential for growth or income, as a buffer against the uncertainties of the economic landscape.
Overlooking Spousal Benefits Optimization
You might not be able to live on your Social Security check if you overlook spousal benefits within the Social Security framework, Fernandes warned.
“If you and your spouse have disparate earnings histories, optimizing the timing and strategy for claiming Social Security benefits can significantly enhance your combined income,” he explained.
This is where engaging a financial advisor can be helpful to explain the nuances of spousal benefits and incorporating them into your retirement plan for maximizing overall income.
High Level of Debt
It’s an unfortunate reality that many folks approaching retirement will struggle to live off their Social Security, said Gates Little, CEO of altLINE at The Southern Bank Company.
“The biggest sign that you’ll struggle to live off of Social Security is a high level of debt,” he explained. “That’s why resolving debts before you retire, or reducing them at the very least, has got to be among your top financial priorities.”
Struggling To Pay Regular Bills
Another big sign that Social Security alone won’t cut it is that you’re currently struggling to pay your bills regularly, Little said.
“If you’re already feeling squeezed, then retiring is likely to just increase that strain on your monthly expenses,” he said.
If you’re forced to put most of your bill payments on credit, that adds to your debt burden. Little said, “It’s essential from there to figure out how you’re going to reduce your outgoings.”
Inadequate Savings Balance
A crucial indicator that you won’t be able to live on your Social Security check is found in your savings balance relative to your expected retirement age, according to Jake Claver, finance expert and owner of Syndicately. “Financial advisors often recommend having at least 10 to 12 times your annual pre-retirement income saved. If your savings fall short of this benchmark, relying solely on Social Security could lead to financial strain.”
He pointed out that Social Security is designed to replace only about 40% of the average worker’s pre-retirement income.
Rising Healthcare Costs
Healthcare is a significant retirement expense, Claver pointed out.
“If you lack adequate health insurance or a health savings account, your Social Security income may not cover these escalating costs, especially as you age and your medical needs increase,” he said.
Considering that the average retiree spends thousands annually on out-of-pocket healthcare costs, these expenses can quickly deplete your income.
You Haven’t Considered Your Lifestyle
You have to think about the kinds of activity and leisure you want to engage in at retirement, Claver pointed out.
“If your retirement plan involves travel, hobbies or maintaining a certain standard of living,” he said, “solely depending on Social Security could be inadequate.”
He warned that it’s essential to calculate the gap between “your lifestyle aspirations and the purchasing power of your projected Social Security income.”
Meyer added that, “Tracking of expenses in the months leading up to retirement provides invaluable insights into anticipated income needs.”
He recommended tracking for a minimum of 12 months leading up to retirement, though sooner is even better.
“While having good data is wonderful, it is important to remember that retirees typically undergo shifts in spending patterns,” Meyer said. “Thinking through the changes in day-to-day life and planning out what activities you will add in retirement can help to give you a better plan as well.”
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