I’m a Social Security Expert: 4 Things You Must Do With Every Social Security Check
Written by
Andrew Lisa
Edited by
Molly Sullivan
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
For some retirees, a Social Security check is just one income stream of many. For others, it’s all they have to spend for the entire month. Either way, it’s important to treat your benefit as a tool for improving your financial security in what might be a very long retirement.
“I’ve observed the critical role strategic financial planning plays in ensuring the financial health of retirees, particularly when it comes to managing Social Security checks,” said Marty Burbank, an elder law and estate planning attorney and the founder of OC Elder Law. “Firstly, one must view each Social Security check not just as money to be spent but as a piece of a larger financial puzzle.”
Here’s a look at what retirees must do with every monthly benefit check they receive.
Pay the Bills
Unless your retirement plan dictates that you’ll use your nest egg, pension or some other form of income to cover your monthly bills and obligations, the first thing you should do with your check is cover your non-negotiables.
“It’s crucial to designate a portion of these funds for immediate needs, such as housing and healthcare, while also considering future expenses,” Burbank said.
Pad Your Healthcare Fund
Whatever you think you’ll need to pay for healthcare in retirement, it’s probably not enough.
According to a Fidelity Investments study, the average person who retired in 2023 should expect to spend $157,500 on medical expenses and healthcare throughout retirement, even with Medicare coverage.
The problem is, most people don’t expect that — or even anything close to that.
The Fidelity report found that people dramatically underestimate healthcare expenses in retirement. According to a 2022 survey, most guess that a couple will need just $41,000 when that’s only around a quarter of what it will cost the average individual.
Therefore, if there’s anything left over after you pay your bills, adding some cushion to your healthcare fund should be your next priority.
“Setting aside a predetermined amount for unexpected medical costs can mitigate financial stress down the road,” Burbank said.
Invest In Other Income Streams
Your retirement lifestyle is only as good as your retirement income. So if you can use some of your benefits to generate a new income source, then you’ll be less reliant on Social Security in the future.
“Investing in long-term, low-risk opportunities can be a wise move,” Burbank said. “Even a small percentage of a Social Security check, if consistently allocated, can grow over time and provide a cushion or additional income stream in later years. This approach has been beneficial for many of my clients, especially when planned in conjunction with other retirement funds and assets.”
Income Annuities
According to U.S. Bank Wealth Management, income annuities are one of the best investments for retirees looking to generate income. They’re insurance contracts in which you agree to pay a sum of money, either monthly or all at once, in exchange for regular income payments. They’re one of the only ways to set up a steady, predictable and guaranteed income stream for a set period of time or for the rest of your life. Payments can even continue to beneficiaries after you die.
On top of that, income annuities can provide tax-deferred growth and tax-advantaged income.
Dividend Stocks
Dividend stocks can be another wise use of money left over from your Social Security check. Stocks that pay dividends — as well as REITs, ETFs and other funds — offer a unique benefit to retirees. You have to sell traditional securities to access their value as spendable cash. But every share you sell shrinks your nest egg, giving you less to draw from in the future and tapping the brakes on compounding.
But dividend stocks pay regular distributions — a new income stream — that you can withdraw and spend without selling shares. Every little bit you contribute each month from your Social Security check grows your holdings and increases the size of your future dividend payments.
Bonds
There’s a reason that bonds have been a classic retirement investment for generations — they’ve stood the test of time as reliable and relatively safe income generators.
There are many different kinds — Treasury bonds, municipal bonds, corporate bonds, mortgage-backed securities, etc. Either way, they’re debt instruments that pay you back for lending money to the issuing entity. Yields vary according to the term, credit rating of the issuer and market conditions, but bonds provide a steady and predictable income stream, often with competitive yields, while adding diversification to equity-heavy portfolios.
The Best Thing To Do When Your Check Arrives: Pause and Review
The most productive thing you can do with every check is to take a moment and reassess where it fits into your plan and the ever-evolving market conditions that steer it.
“Review and adjust your financial strategy regularly,” Burbank said. “The economic landscape and individual needs change, and what may have been a solid plan five years ago might not be as effective today. In my practice, I emphasize the importance of staying informed on Social Security policies and encourage regular consultations with financial advisors to adjust plans as needed. Overall, the key to financial health in retirement involves balanced spending, saving, and investing of Social Security checks, aligned with a well-thought-out financial plan.”
More From GOBankingRates
